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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934 for the
Quarterly Period Ended
June 30, 1998
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the transition period from _________ to_________
Commission file number 33-91600
SWEETHEART HOLDINGS INC.*
(Exact name of registrant as specified in its charter)
Delaware 06-1281287
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
10100 Reisterstown Road, Owings Mills, Maryland 21117
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 410/363-1111
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
The number of shares outstanding of the Registrant's stock
as of August 14, 1998:
Sweetheart Holdings Inc.
Class A Common Stock, $0.01 par value - 1,046,000 shares
Sweetheart Holdings Inc.
Class B Common Stock, $0.01 par value - 4,393,200 shares
* The Registrant is the guarantor of the 9 5/8 % Senior Secured Notes due
2000 and the 10 1/2% Senior Subordinated Notes due 2003 (collectively,
the "Notes") of Sweetheart Cup Company Inc., a wholly owned subsidiary
of the Registrant.
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Page 1 of 14
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Sweetheart Holdings Inc. and Subsidiaries
Consolidated Balance Sheets
(In thousands, except share data)
<TABLE>
<CAPTION>
(Unaudited)
June 30, September 30,
1998 1997 (a)
----------------- ----------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 4,236 $ 2,650
Restricted cash -- 29,016
Cash in escrow 6,819 13,323
Receivables, less allowances of $2,780 and $1,740, respectively 90,764 85,774
Inventories 133,690 142,277
Deferred income taxes 2,471 2,471
Assets held for sale -- 8,466
Other current assets 17,940 20,868
--------- ---------
Total current assets 255,920 304,845
Property, plant and equipment 544,629 527,999
Less - Accumulated depreciation 174,703 145,508
--------- ---------
Net property, plant and equipment 369,926 382,491
Deferred income taxes 43,397 15,098
Other assets 12,775 13,155
--------- ---------
Total assets $ 682,018 $ 715,589
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 70,987 $ 58,933
Accrued payroll and related costs 40,204 40,528
Other current liabilities 52,100 43,815
Current portion of long-term debt 730 1,369
--------- ---------
Total current liabilities 164,021 144,645
--------- ---------
Long-term debt 420,967 430,499
Other liabilities 67,304 69,775
Shareholders' equity:
Common Stock - par value $.01 per share; 3,000,000 shares
authorized; 1,046,000 shares issued and outstanding -- 101,100
Class A Common Stock - par value $.01 per share; 1,100,000
shares authorized; 1,046,000 shares issued and outstanding 101,100 --
Class B Common Stock - par value $.01 per share; 4,600,000
shares authorized; 4,393,200 shares issued and outstanding 44 --
Cumulative translation adjustment (1,224) (507)
Retained earnings (70,194) (29,552)
Note receivable related to purchase of common stock -- (371)
--------- ---------
Total shareholders' equity 29,726 70,670
--------- ---------
Total liabilities and shareholders' equity $ 682,018 $ 715,589
========== ==========
</TABLE>
(a) Prior period balances have been restated (see Note 2 to Consolidated
Financial Statements)
See accompanying notes to consolidated financial statements.
2
<PAGE>
Sweetheart Holdings Inc. And Subsidiaries
Consolidated Statements of Operations
(Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
For the quarter ended For the nine months ended
June 30, June 30,
--------------------------------- ------------------------------------
1998 1997 (a) 1998 1997 (a)
--------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C>
Net sales $ 233,792 $ 251,961 $ 626,960 $ 650,068
Cost of sales 214,856 222,322 588,821 614,933
--------- --------- --------- ---------
Gross profit 18,936 29,639 38,139 35,135
Selling, general and
administrative expense 16,007 16,333 54,131 49,248
Other expense (income), net (93) (337) 6,184 245
Restructuring charges -- -- 10,527 --
--------- --------- --------- ---------
Operating income (loss) 3,022 13,643 (32,703) (14,358)
Interest expense, net of interest
income 10,941 10,129 32,439 29,630
--------- --------- --------- ---------
Income (loss) before income
tax benefit and
cumulative effect of
change in accounting (7,919) 3,514 (65,142) (43,988)
principle
Income tax expense (benefit) (3,168) 1,405 (26,055) (17,595)
--------- --------- --------- ---------
Income (loss) before
cumulative effect of
change in accounting (4,751) 2,109 (39,087) (26,393)
principle
Cumulative effect of change in
accounting principle (net of
income taxes of $1,007) -- -- (1,511) --
--------- --------- --------- ---------
Net income (loss) $ (4,751) $ 2,109 $ (40,598) $ (26,393)
========= ========= ========= =========
</TABLE>
(a) Prior period balances have been restated (see Note 2 to Consolidated
Financial Statements)
See accompanying notes to consolidated financial statements.
3
<PAGE>
Sweetheart Holdings Inc. And Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
For the nine months ended
June 30,
----------------------------------
1998 1997
--------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (40,598) $ (26,393)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 34,364 35,489
Deferred income tax benefit (26,055) (18,051)
Cumulative effect of a change in accounting principle 1,511 --
Gain on sale of bakery business (3,459) --
Gain on sale of property, plant and equipment (786) --
Increase in receivables (4,990) (2,815)
Decrease in inventories 8,587 11,898
Increase (decrease) in accounts payable 12,054 (1,530)
Other, net 5,529 (7,098)
------------ -------------
Net cash used in operating activities (13,843) (8,500)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment (26,144) (37,503)
Proceeds from sale of property, plant and equipment 889 --
Proceeds from sale of bakery business 14,718 --
----------------- -----------
Net cash used in investing activities (10,537) (37,503)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds of debt 285,566 219,709
Repayment of debt (294,119) (175,916)
Payment of financing fees (1,372) --
Decrease in restricted cash 29,016 3,347
Decrease in escrow cash 6,504 --
Payment received on common stock note receivable 371 52
------------ ------------
Net cash provided by financing activities 25,966 47,192
------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 1,586 1,189
CASH AND CASH EQUIVALENTS, beginning of period 2,650 4,371
------------ ------------
CASH AND CASH EQUIVALENTS, end of period $ 4,236 $ 5,560
============ ============
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Interest paid $ 22,241 $ 20,941
============ ============
Income taxes paid $ 459 $ 854
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
SWEETHEART HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(1) BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles (GAAP) for
interim financial information and with the instructions of Form 10-Q and rule
10-01 of regulation S-X. Accordingly, these statements do not include all the
information required by GAAP for complete financial statements. The interim
financial statements should be read in conjunction with the consolidated
financial statements and notes thereto in the Company's Form 10-K/A for the year
ended September 30, 1997. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation of Sweetheart Holdings Inc. and subsidiaries' (the "Company")
financial position as of June 30, 1998 and the results of operations and cash
flows for the nine months ended June 30, 1998 have been included. Operating
results for the nine month period ended June 30, 1998 are not necessarily
indicative of the results to be expected for the year ending September 30, 1998.
Additionally, certain prior year balances have been reclassified to conform with
current presentation.
(2) RESTATEMENTS
Effective June 1, 1998, the Company changed its method of accounting
for inventories from the last-in first-out (LIFO) method to the first-in
first-out (FIFO) method. Management believes that the FIFO method is preferable
because it more accurately presents the Company's financial position as it
reflects more recent costs at the balance sheet date and more accurately matches
revenues with costs reported during the period presented. The financial
statements of prior periods have been restated to apply the FIFO method of
accounting for inventories retroactively. The effect of this restatement was to
decrease retained earnings as of September 30, 1997 by $3.9 million. Net income
decreased by $0.1 million and $4.8 million in the nine months ended June 30,
1998 and 1997, respectively, and by $0.6 million in the three months ended June
30, 1997.
(3) ACCOUNTING PRONOUNCEMENTS
During the quarter ended December 31, 1997, the Company recorded a $1.5
million expense as a cumulative effect of change in accounting principle (net of
$1.0 million of income taxes) relating to the implementation of EITF 97-13,
which requires companies to expense any previously capitalized reengineering
costs in connection with software installation.
(4) INVENTORIES
The components of inventories were as follows (in thousands):
June 30, September 30,
1998 1997
------------------ -----------------
Raw materials and supplies $ 28,335 $ 31,416
Work in process 9,262 7,701
Finished goods 96,093 103,160
--------- ----------
$ 133,690 $ 142,277
========= ==========
5
<PAGE>
(5) LONG TERM DEBT
On June 15, 1998, the Company's Canadian subsidiary refinanced its then
existing Canadian term loan and revolving credit facility and entered into a new
credit agreement which provides for a term loan facility of up to Cdn. $10.0
million and a revolving credit facility of up to Cdn. $10.0 million. Term loan
borrowings under this facility are payable quarterly through May 2001 and
revolving credit facilities have a final maturity date of June 15, 2001. The
credit facility is secured by all of the existing and after acquired real and
personal, tangible assets of the Company's Canadian subsidiary and the net
proceeds on the sale of any of the foregoing. Borrowings bear interest at an
index rate plus 2.25% with respect to the revolving credit borrowings, and an
index rate plus 2.50% with respect to the term loan borrowings.
(6) STOCKHOLDERS' EQUITY
On March 12, 1998, the stockholders of the Company consummated an
agreement with SF Holdings Group, Inc. ("SF Holdings") and an affiliate of SF
Holdings. In connection with this transaction, all shareholders of record on
March 11, 1998 exchanged their shares of common stock for a new Class A Common
Stock. In addition, a stock dividend of 4.2 shares of a new Class B Common Stock
was declared to the shareholders of record on March 11, 1998. SF Holdings
acquired from the Company's stockholders 48% of the Company's outstanding Class
A Common Stock and all of the outstanding Class B Common Stock. As a result, SF
Holdings holds 90% of the total number of outstanding shares of both classes of
the Company's common stock.
The Class A and Class B Common Stock have the same powers, preferences
and rights, except that the Class B Common Stock has no voting rights. Class A
and Class B Common Stock share the profits and losses generated by the Company
on a pro-rata basis.
(7) OTHER EXPENSE, NET
In the quarter ended March 31, 1998, the Company recognized certain
one-time charges, consisting primarily of $4.4 million of financial advisory and
legal fees associated with the investment by SF Holdings (see Note 6 above) and
$3.7 million of severance expenses as a result of the termination of certain
officers of the Company pursuant to executive separation agreements and
retention plans for certain key executives.
(8) RESTRUCTURING CHARGES
In the quarter ended March 31, 1998, the Company reduced its salaried
workforce by approximately 15% and hourly workforce by less than 5%, and decided
to rationalize certain product lines, and in connection therewith, dispose of
the associated property and equipment. In connection with such plans, the
Company recognized $10.5 million of charges for severance and asset disposition
costs, of which $3.6 million of cash expenditures remain unpaid as of June 30,
1998. The Company anticipates substantial completion of this restructuring
within the next twelve months.
6
<PAGE>
(9) SWEETHEART CUP COMPANY INC. SUMMARIZED FINANCIAL INFORMATION
Sweetheart Holdings Inc. is the guarantor of the 9 5/8% Senior Secured
Notes due 2000 and the 10 1/2% Senior Subordinated Notes due 2003 of Sweetheart
Cup Company Inc., a wholly owned subsidiary of Sweetheart Holdings Inc.
Summarized financial information for Sweetheart Cup Company Inc. is presented as
follows (in thousands):
(Unaudited)
June 30, 1998 September 30,1997 (a)
--------------------- -------------------------
Current assets $257,357 $301,448
Noncurrent assets 446,088 436,195
Current liabilities 133,573 116,886
Noncurrent liabilities 549,146 563,066
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
For the quarter ended For the nine months ended
June 30, June 30,
------------------------------- ---------------------------------
1998 1997 (a) 1998 1997 (a)
-------------- ------------- -------------- ---------------
<S> <C> <C> <C> <C>
Net sales $233,793 $251,961 $626,960 $650,068
Gross profit 13,051 23,221 20,765 16,558
Net income (loss) before
cumulative effect of change
in accounting principle (5,806) 1,686 (35,723) (27,277)
Net income (loss) (5,806) 1,686 (37,129) (27,277)
</TABLE>
(a) Prior period balances have been restated (see Note 2)
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
GENERAL
The Company operates in two principal business lines: Foodservice and
food packaging. Foodservice products include disposable hot and cold drink cups,
lids, food containers, plates, bowls and cutlery. These products are sold
directly and through distributors to fast food chains, full service restaurants,
hospitals, airlines, theaters and other institutional customers. Food packaging
products include paper and plastic containers for the dairy and food processing
industries. Food packaging also designs, manufactures and leases filling and
packaging machines that fill and seal the Company's containers in customers'
plants.
The Company's business is highly seasonal with the majority of its net
cash flows from operations realized in the second and third quarters of the
calendar year when away-from-home consumption increases. In the event that the
Company's cash flow from operations is insufficient to provide working capital
necessary to fund production and other cash requirements, the Company will need
to utilize its credit facilities or seek other sources of capital. Although the
Company believes that funds available under its credit facilities together with
cash generated from operations will be adequate to provide for the Company's
cash requirements, there can be no assurance that such capital resources will be
sufficient in the future.
On March 12, 1998, the stockholders of the Company consummated an
agreement with SF Holdings and an affiliate of SF Holdings. In connection with
this transaction, all shareholders of record on March 11, 1998 exchanged their
shares of common stock for a new Class A Common Stock. In addition, a stock
dividend of 4.2 shares of a new Class B Common Stock was declared to the
shareholders of record on March 11, 1998. SF Holdings acquired from the
Company's stockholders 48% of the Company's outstanding Class A Common Stock and
all of the outstanding Class B Common Stock. As a result, SF Holdings holds 90%
of the total number of outstanding shares of both classes of the Company's
common stock.
YEAR 2000
The Company has implemented Year 2000 compliance programs designed to
ensure that its computer systems and applications will function properly beyond
1999. The Company expects its Year 2000 date conversion programs to be
substantially completed by the end of 1999 and believes that adequate resources,
both internal and external, have been allocated for this purpose. Management
estimates spending for these programs, including Fiscal 1998, to be
approximately $2.7 million and will be funded from cash from operations or
borrowings under the Credit Facilities. However, there can be no assurance that
the Company will identify all Year 2000 date conversion problems in its computer
systems in advance of their occurrence or that the Company will be able to
successfully remedy all problems that are discovered. Failure by the Company
and/or its significant vendors and customers to complete Year 2000 compliance
programs in a timely manner could have a material adverse effect on the
Company's business, financial condition and results of operations. In addition,
the revenue stream and financial stability of existing customers may be
adversely impacted by Year 2000 problems which could cause fluctuation in the
Company's revenues and operating profitability.
THREE MONTHS ENDED JUNE 30, 1998 COMPARED TO THREE MONTHS ENDED JUNE 30, 1997
Net sales decreased $18.2 million, or 7.2%, to $233.8 million in the
three months ended June 30, 1998 compared to $252.0 million in the three months
ended June 30, 1997. The December 1997 sale of the bakery business resulted in a
$11.1 million decrease in sales. Excluding the impact of the bakery business
sale, net sales decreased by $7.1 million, or 2.9%, reflecting a 2.8% decrease
in domestic sales price and a 0.2% decrease in domestic sales volume. Price has
been negatively impacted both by competitive market conditions and by falling
8
<PAGE>
raw material prices. The benefit of lower raw material prices is generally
passed on to customers. Foodservice sales volume decreased 0.1% while food
packaging sales volume decreased 1.1%. The decrease in food packaging sales
volume is primarily attributable to decreases in demand by large accounts in
their customer base due to market conditions. Canadian sales increased $0.1
million or 0.4%.
Gross profit decreased $10.7 million, or 36.1%, to $18.9 million in the
three months ended June 30, 1998 compared to $29.6 million in the three months
ended June 30, 1997. As a percentage of net sales, gross profit decreased from
11.8% in the three months ended June 30, 1997 to 8.1% in the three months ended
June 30, 1998. This decrease is partially attributable to inventory charges
recognized as a result of the Company's initiative to eliminate certain
slow-moving and low demand inventory items, which was begun in the third quarter
of fiscal 1998. Gross profit was also negatively impacted by the sale of the
bakery business.
Selling, general and administrative expenses decreased $0.3 million, or
2.0%, to $16.0 million in the three months ended June 30, 1998 compared to $16.3
million in the three months ended June 30, 1997. This decrease reflects cost
savings as a result of reductions in headcount and related spending. These
savings were offset by increased costs associated with the year 2000 compliance
program and maintenance and depreciation on the new MIS system, as well as
expenses associated with one-time employee relocation charges.
Operating income decreased $10.6 million, or 77.8%, to $3.0 million in
the three months ended June 30, 1998 compared to $13.6 million in the three
months ended June 30, 1997 due to the reasons described above.
Interest expense increased $0.8 million to $10.9 million in the three
months ended June 30, 1998 compared to $10.1 million in the three months ended
June 30, 1997 due primarily to higher average use of revolving credit borrowings
and incremental interest paid on the portion of the U.S. Credit Facility used to
refinance the SRC Series 1994-1 A-V Notes.
Income tax expense (benefit) reflects an effective rate of 40% for the
three month periods ending June 30, 1998 and 1997, resulting in a tax benefit of
$3.2 million in the three months ended June 30, 1998 and a tax expense of $1.4
million in the three months ended June 30, 1997.
Net income (loss) decreased $6.9 million to a loss of $4.8 million in
the three months ended June 30, 1998 compared to income of $2.1 million in the
three months ended June 30, 1997 due to the reasons described above.
NINE MONTHS ENDED JUNE 30, 1998 COMPARED TO NINE MONTHS ENDED JUNE 30, 1997
Net sales decreased $23.1 million, or 3.6%, to $627.0 million in the
nine months ended June 30, 1998 compared to $650.1 million in the nine months
ended June 30, 1997. The December 1997 sale of the bakery business resulted in a
$18.7 million decrease in sales. Excluding the impact of the bakery business
sale, net sales decreased by $4.4 million, or 0.7%, reflecting a 2.9% decrease
in domestic sales price which is partially offset by a 1.9% increase in domestic
sales volume. Price has been negatively impacted both by competition in the
marketplace and by falling raw material prices. The benefit of lower raw
material prices is generally passed on to customers. Foodservice sales volume
increased 2.4%, primarily as a result of the Company's focus on revenue growth
with key customers which began during fiscal 1997. Food packaging sales volume
decreased 1.1%, which reflects decreases in demand by large accounts in their
customer base due to market conditions. Canadian sales increased $1.7 million,
or 4.2%, due primarily to volume increases associated with promotional programs
offered by major customers in the second fiscal quarter.
Gross profit increased $3.0 million, or 8.6%, to $38.1 million in the
nine months ended June 30, 1998 compared to $35.1 million in the nine months
ended June 30, 1997. As a percentage of net sales, gross profit increased from
5.4% in the nine months ended June 30, 1997 to 6.1% in the nine months ended
June 30, 1998. This improvement primarily results from cost reduction programs
implemented in fiscal year 1997, including plant consolidation and manufacturing
and operational improvements, which have favorably impacted costs in fiscal year
1998. Additionally, the Company has benefited from higher margin product sales
to key customers. These improvements were partially offset by inventory charges
9
<PAGE>
discussed in the three month comparison above, as well as a decrease in gross
profit relating to the sale of the bakery business.
Selling, general and administrative expenses increased $4.9 million, or
9.9%, to $54.1 million in the nine months ended June 30, 1998 compared to $49.2
million in the nine months ended June 30, 1997. Increased costs in the first two
quarters of fiscal 1998 associated with wages and benefits and an executive
retention plan were partially offset in third quarter of fiscal 1998 by cost
savings as a result of reductions in headcount and related spending as discussed
in the three month comparison above. The Company also incurred increased
expenses attributable to sales and marketing costs associated with the Company's
focus on increasing its sales volume with key customers, costs associated with
the year 2000 compliance program and maintenance and depreciation on the new MIS
system, as well as expenses associated with one-time employee relocation
charges.
Other expense, net increased $6.0 million to $6.2 million in the nine
months ended June 30, 1998 compared to $0.2 million in the nine months ended
June 30, 1997. In fiscal 1998, the Company recognized certain one-time charges,
consisting primarily of $4.4 million of financial advisory and legal fees
associated with the investment by SF Holdings (see Note 6) and $3.7 million of
severance expenses as a result of the termination of certain officers of the
Company pursuant to executive separation agreements and retention plans for
certain key executives. These expenses were offset in part by the $3.5 million
gain on the sale of the bakery business.
Restructuring charges of $10.5 million were recognized in fiscal 1998.
In March 1998, the Company reduced its workforce and decided to rationalize
certain product lines and, in connection therewith, dispose of the associated
property and equipment. In connection with such plans, the Company recognized
charges for severance and asset disposition costs. The Company believes these
product line rationalizations will not have a material adverse effect on the
Company's results of operations or financial condition and anticipates
substantial completion of this restructuring within the next twelve months.
Operating loss increased $18.3 million to $32.7 million in the nine
months ended June 30, 1998 compared to $14.4 million in the nine months ended
June 30, 1997 due to the reasons described above.
Net interest expense increased $2.8 million to $32.4 million in the
nine months ended June 30, 1998 compared to $29.6 million in the nine months
ended June 30, 1997 due primarily to higher average use of revolving credit
borrowings and incremental interest paid on the portion of the U.S. Credit
Facility used to refinance the SRC Series 1994-1 A-V Notes.
Income tax benefit increased $8.5 million to $26.1 million in the nine
months ended June 30, 1998 compared to $17.6 million in the nine months ended
June 30, 1997. The effective rate for the six month periods ending March 31,
1998 and 1997 was 40%.
Cumulative effect of change in accounting principle was an expense
recorded to write-off previously capitalized costs as explained in Note 3.
Net loss increased $14.2 million, or 53.8%, to $40.6 million in the
nine months ended June 30, 1998 compared to $26.4 million in the nine months
ended June 30, 1997 due to the reasons described above.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities for the nine months ended June
30, 1998 was $13.8 million compared to $8.5 million for the nine months ended
June 30, 1997. The net cash used in operating activities in both periods was due
principally to the net losses recorded in such periods which reflect both market
conditions and nonrecurring charges.
Working capital decreased $68.3 million from $160.2 million at
September 30, 1997 to $91.9 million at June 30, 1998. This decrease consists
primarily of a $29.0 million decrease in restricted cash as a result of the
refinancing of the SRC Series 1994-1 A-V Notes, a $14.2 million decrease in
10
<PAGE>
bakery assets which were sold in December 1997, a $12.1 million increase in
accounts payable representing an increase in raw material purchases to support
the Company's seasonal production needs, and a $8.3 million increase in accrued
liabilities which relate primarily to restructuring charges incurred in both
fiscal 1997 and the three months ended March 31, 1998.
Historically, the Company's investing activities, which consist
primarily of capital expenditures, have been funded through operating cash
flows. Capital expenditures for the nine months ended June 30, 1998 were $26.1
million ($10.5 million net of proceeds from the sale of the bakery business and
from the sale of property, plant and equipment) compared to $37.5 million in the
nine month period ended June 30, 1997. Capital expenditures were primarily for
routine capital improvements. During the current fiscal year, the Company has
and will continue to rely principally on proceeds from the sale of property,
plant and equipment to fund capital expenditures. The Company does not
anticipate any material capital expenditures in the next twelve months other
than those funded through asset sales.
On October 24, 1997, the Company refinanced its then existing revolving
credit facility and other indebtedness and entered into a new revolving credit
facility, as amended, in an amount of up to $135.0 million, subject to borrowing
base limitations (the "U.S. Credit Facility"). Borrowings under the U.S. Credit
Facility mature on September 30, 2000. The U.S. Credit Facility is secured by
accounts receivable, inventory, equipment, intellectual property, general
intangibles and the proceeds on the sale of any of the foregoing. On June 15,
1998, the Company refinanced its then existing Canadian term loan and revolving
credit facility and entered into a new credit agreement which provides for a
term loan facility of up to Cdn. $10.0 million and a revolving credit facility
of up to Cdn. $10.0 million (the "Canadian Credit Facility"). Term loan
borrowings under the Canadian Credit Facility are payable quarterly through May
2001, revolving credit facilities have a final maturity date of June 15, 2001.
The Canadian Credit Facility is secured by all of the existing and after
acquired real and personal, tangible assets of the Company's Canadian subsidiary
and the net proceeds on the sale of any of the foregoing. Borrowings bear
interest at an index rate plus 2.25% with respect to the revolving credit
borrowings, and an index rate plus 2.50% with respect to the term loan
borrowings. As of June 30, 1998, $12.5 million is available under the U.S.
Credit Facility, and Cdn. $6.4 million (U.S. $4.4 million) is available under
the Canadian Credit Facility.
The Company's principal uses of cash will continue to be for working
capital, capital expenditures and debt service requirements. In addition, the
Company may be required to fund various contingent liabilities at any time,
including amounts accrued for litigation, claims and assessments reflected on
the balance sheet as other current liabilities. Although the Company believes
that cash generated by operations and funds available from working capital
borrowings under the Credit Facilities, as well as funds generated by asset
sales, will be sufficient to meet expected operating needs, planned capital
expenditures and debt service requirements, there can be no assurance that such
capital resources will be sufficient in the future.
NET OPERATING LOSS CARRYFORWARDS
As of September 30, 1997, the Company had approximately $170 million of
net operating loss ("NOL") carryforwards for federal income tax purposes.
Although the Company has taken certain steps to allow utilization of the NOL
carryforwards and anticipates that a substantial portion of its NOL
carryforwards will be available to offset future taxable income, there can be no
assurance that its NOL carryforwards will become available or that the Company
will generate future taxable income. Accordingly, all or a portion of its NOL
carryforwards could expire unutilized, which could adversely affect the
Company's ability to satisfy obligations as they become due.
11
<PAGE>
FORWARD-LOOKING STATEMENTS
Forward-looking statements in this filing, including those in the
footnotes to the financial statements, are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements are subject to risks and uncertainties and actual
results could differ materially. Such risks and uncertainties include, but are
not limited to, general economic and business conditions, competitive market
pricing, increases in raw material, energy and other manufacturing costs,
fluctuations in demand for the Company's products, potential equipment
malfunctions and pending litigation. For additional information see the
Company's annual report on Form 10-K/A for the most recent fiscal year.
12
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On May 21, 1998, the United States Court of Appeals for the
Eleventh Circuit (the "Circuit Court") affirmed the judgment in
favor of the Company in the matter of Aldridge v. Lily Tulip Inc.
Salary Retirement Plan Benefits Committee and Fort Howard Cup
Corporation. On June 10, 1998, the plaintiffs petitioned the
Circuit Court for a rehearing of their appeal, which petition was
denied.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
10.51 Credit Agreement dated as of June 15, 1998 between
Lily Cups Inc. as Borrower and General Electric
Capital Canada Inc. as Lender.
10.52 Security Agreement made as of June 15, 1998
between Lily Cups Inc. As Grantor and General
Electric Capital Canada Inc. as Lender.
18.0 Preferability letter
27.0 Financial Data Schedule
(b) Reports on Form 8-K:
A change in the Company's certifying accountant was filed as
an Item 4 disclosure on Form 8-K on May 1, 1998.
13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, its duly authorized officer and principal financial officer.
SWEETHEART HOLDINGS INC.
(registrant)
Date: August 14, 1998 By: /s/ Hans H. Heinsen
----------------- -------------------
Hans H. Heinsen
Vice President, Finance and
Chief Financial Officer
- --------------------------------------------------------------------------------
CREDIT AGREEMENT
Dated as of June 15, 1998
Between
LILY CUPS INC.
as Borrower
and
GENERAL ELECTRIC CAPITAL CANADA INC.
as Lender
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
RECITALS..............................................................1
SECTION 1 -- AMOUNT AND TERMS OF CREDIT
1.1 Credit Facilities............................................1
(1) Revolving Credit Facility...........................1
(2) Term Loan...........................................2
(3) Reliance on Notices.................................3
1.2 Letters of Credit............................................3
1.3 Prepayments..................................................3
(1) Voluntary Prepayments...............................3
(2) Mandatory Prepayments...............................4
(3) Application of Certain Mandatory Prepayments........4
(4) Application of Prepayments from Insurance Proceeds..5
(5) No Consent Construed................................5
1.4 Use of Proceeds..............................................5
1.5 Interest and Applicable Margins..............................6
(1) Interest............................................6
(2) Extension to Next Business Day......................6
(3) Calculations on 365 Day Year........................6
(4) Interest Upon Payment Default. .....................6
(5) Criminal Rates of Interest..........................6
(6) Interest Act........................................7
1.6 Eligible Accounts............................................7
1.7 Eligible Inventory and Eligible WIP Inventory...............10
1.8 Cash Management Systems.....................................11
1.9 Fees........................................................11
1.10 Receipt of Payments.........................................12
1.11 Application and Allocation of Payments......................12
1.12 Loan Account and Accounting.................................13
1.13 Indemnity...................................................13
1.14 Access......................................................14
1.15 Taxes.......................................................14
1.16 Capital Adequacy; Increased Costs...........................15
1.17 Single Loan.................................................16
SECTION 2 -- CONDITIONS PRECEDENT
2.1 Conditions to the Initial Loans.............................16
(1) Credit Agreement; Loan Documents...................16
(2) Repayment of Prior Lender Obligations;
Satisfaction of Outstanding L/Cs...................16
(3) Approvals..........................................17
(4) Opening Availability...............................17
(i)
<PAGE>
(5) Payment of Fees....................................17
(6) Capital Structure: Other Indebtedness..............17
2.2 Further Conditions to Each Loan.............................17
SECTION 3 -- REPRESENTATIONS AND WARRANTIES
3.1 Corporate Existence; Compliance with Law....................18
3.2 Executive Offices...........................................19
3.3 Corporate Power, Authorization, Enforceable Obligations.....19
3.4 Financial Statements and Projections........................19
3.5 Material Adverse Effect.....................................20
3.6 Ownership of Property; Liens................................20
3.7 Labour Matters..............................................21
3.8 Ventures, Subsidiaries and Affiliates;
Outstanding Stock and Indebtedness..........................21
3.9 Government Regulation.......................................21
3.10 Taxes.......................................................22
3.11 Canadian Pension and Benefit Plans..........................22
3.12 No Litigation...............................................23
3.13 Brokers.....................................................23
3.14 Intellectual Property.......................................23
3.15 Full Disclosure.............................................23
3.16 Environmental Matters.......................................23
3.17 Insurance...................................................24
3.18 Deposit and Disbursement Accounts...........................24
3.19 Government Contracts........................................24
3.20 Customer and Trade Relations................................24
3.21 Agreements and Other Documents..............................25
3.22 Solvency....................................................25
3.23 Year 2000 Representations...................................25
SECTION 4 -- FINANCIAL STATEMENTS AND INFORMATION
4.1 Reports and Notices.........................................25
4.2 Communication with Accountants..............................25
SECTION 5 -- AFFIRMATIVE COVENANTS
5.1 Maintenance of Existence and Conduct of Business............26
5.2 Payment of Obligations......................................26
5.3 Books and Records...........................................26
5.4 Insurance; Damage to or Destruction of Collateral...........27
5.5 Compliance with Laws........................................28
5.6 Supplemental Disclosure.....................................29
5.7 Intellectual Property.......................................29
5.8 Environmental Matters.......................................29
5.9 Landlords' Agreements, Mortgagee Agreements
and Bailee Letters..........................................30
5.10 Further Assurances..........................................31
(ii)
<PAGE>
5.11 Year 2000 Problems..........................................31
SECTION 6 -- NEGATIVE COVENANTS
6.1 Amalgamations, Subsidiaries, Etc............................32
6.2 Investments; Loans and Advances.............................32
6.3 Indebtedness; Unfunded Pension and Benefit Plan Obligations.33
6.4 Employee Loans and Affiliate Transactions...................33
6.5 Capital Structure and Business..............................34
6.6 Guaranteed Indebtedness.....................................34
6.7 Liens.......................................................34
6.8 Sale of Stock and Assets....................................34
6.9 Financial Covenants.........................................35
6.10 Hazardous Materials.........................................35
6.11 Sale-Leasebacks.............................................35
6.12 Cancellation of Indebtedness................................35
6.13 Restricted Payments.........................................35
6.14 Change of Corporate Name or Location; Change of Fiscal Year.35
6.15 No Speculative Transactions.................................36
6.16 Leases......................................................36
6.17 Changes Related to Subordinated Debt........................36
SECTION 7 -- TERM
7.1 Termination.................................................36
7.2 Survival of Obligations Upon Termination of
Financing Arrangements......................................37
SECTION 8 -- EVENTS OF DEFAULT: RIGHTS AND REMEDIES
8.1 Events of Default...........................................37
8.2 Remedies....................................................40
8.3 Waivers by Borrower.........................................40
SECTION 9 -- PARTICIPATIONS
9.1 Participations..............................................40
SECTION 10 -- SUCCESSORS AND ASSIGNS
10.1 Successors and Assigns......................................41
SECTION 11 -- MISCELLANEOUS
11.1 Complete Agreement; Modification of Agreement...............42
11.2 Amendments and Waivers......................................42
11.3 Fees and Expenses...........................................42
11.4 No Waiver...................................................43
11.5 Remedies....................................................44
11.6 Severability................................................44
11.7 Conflict of Terms...........................................44
(iii)
<PAGE>
11.8 Confidentiality.............................................44
11.9 GOVERNING LAW...............................................44
11.10 Notices.....................................................45
11.11 Section Titles..............................................46
11.12 Counterparts................................................46
11.13 Press Releases..............................................46
11.14 Reinstatement...............................................46
11.15 Advice of Counsel...........................................46
11.16 No Strict Construction......................................46
11.17 Dollar References...........................................47
11.18 Judgment Currency...........................................47
11.19 Time of Day.................................................48
ANNEXES
ANNEX A - (Recitals) - Definitions
ANNEX B - (Section 1.2) - Letters of Credit
ANNEX C - (Section 1.8) - Cash Management Systems
ANNEX D - (Section 2.1(1)) - Schedule of Additional Closing Documents
ANNEX E - (Section 4.1(1)) - Financial Statements and Projections - Reporting
ANNEX F - (Section 4.1(2)) - Collateral Reports
ANNEX G - (Section 6.9) - Financial Covenants
ANNEX H - (Section 1.1(3)) - Lender's Wire Transfer Information
ANNEX I - (Section 11.10) - Notice Addresses
SCHEDULES
Schedule 1.1 - Representative of Lender
Schedule 1.4 - Use of Proceeds
Schedule 3.2 - Executive Offices
Schedule 3.4(1) - Financial Statements
Schedule 3.4(2) - Projections
Schedule 3.6 - Ownership of Property; Liens
Schedule 3.7 - Labour Matters
Schedule 3.8 - Ventures, Subsidiaries and Affiliates; Outstanding Stock and
Indebtedness
Schedule 3.9 - Government Regulations
(iv)
<PAGE>
Schedule 3.10 - Taxes
Schedule 3.11 - Canadian Pension and Benefit Plans
Schedule 3.12 - No Litigation
Schedule 3.14 - Intellectual Property
Schedule 3.16 - Environmental Matters
Schedule 3.17 - Insurance
Schedule 3.18 - Deposit and Disbursement Accounts
Schedule 3.19 - Government Contracts
Schedule 3.21 - Agreements and Other Documents
Schedule 5.1 - Maintenance of Existence
Schedule 6.3 - Indebtedness
Schedule 6.4(1) - Employee Loans and Affiliate Transactions
Schedule 6.7 - Liens
EXHIBITS
Exhibit 1.1(1)(a) - Form of Notice of Revolving Credit Advance
Exhibit 1.1(1)(b) - Form of Revolving Note
Exhibit 1.1(2) - Form of Term Note
Exhibit 4.1(2) - Borrowing Base Certificate
(v)
<PAGE>
CREDIT AGREEMENT
CREDIT AGREEMENT, dated as of June 15, 1998 between LILY CUPS INC., an Ontario
corporation ("BORROWER"), and GENERAL ELECTRIC CAPITAL CANADA INC., a Canada
corporation (in its individual capacity, "GE CAPITAL CANADA"), as Lender.
RECITALS
A. Borrower desires that Lender extend revolving and term credit facilities to
Borrower of up to Twenty Million Canadian Dollars ($20,000,000) in the aggregate
for the purposes of (1) financing Borrower's Capital Improvement Program, (2)
the Refinancing and (3) providing working capital financing for Borrower and
funds for other general corporate purposes of Borrower; and for these purposes,
Lender is willing to make certain loans and other extensions of credit to
Borrower of up to such amount upon the terms and conditions set forth herein.
B. Borrower desires to secure all of its obligations under the Loan Documents by
granting to Lender a security interest in, charges on and other liens upon all
of its existing and after-acquired personal and real property.
C. Capitalized terms used in this Agreement shall have the meanings ascribed to
them in Annex A. All Annexes, Disclosure Schedules, Exhibits and other
attachments (collectively, "APPENDICES") hereto, or expressly identified to this
Agreement, are incorporated herein by reference, and taken together, shall
constitute but a single agreement. These Recitals shall be construed as part of
the Agreement.
FOR VALUE RECEIVED, the parties agree as follows:
SECTION 1 -- AMOUNT AND TERMS OF CREDIT
1.1 CREDIT FACILITIES.
(1) REVOLVING CREDIT FACILITY
(a) Subject to the terms and conditions hereof, Lender agrees to make
available from time to time until the Commitment Termination Date
advances (each, a "REVOLVING CREDIT ADVANCE") on account of the
Revolving Loan. The aggregate amount of Revolving Credit Advances
outstanding shall not exceed at any time the lesser of (A) the
Borrowing Base less $500,000 and (B) the Maximum Amount and, in each
case, less the sum of the Letter of Credit Obligations ("BORROWING
AVAILABILITY"). Until the Commitment Termination Date, Borrower may
from time to time borrow, repay and reborrow under this Section
1.1(1). Each Revolving Credit Advance shall be made on notice by
Borrower to the representative of Lender identified on Schedule 1.1 at
the address specified thereon. Those notices must be given no later
than 11:00 a.m. (Toronto time) on
<PAGE>
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the Business Day of the proposed Revolving Credit Advance. Each such
notice (a "NOTICE OF REVOLVING CREDIT ADVANCE") must be given in
writing (by telecopy or overnight courier) substantially in the form
of Exhibit 1.1(1)(a), and shall include the information required in
such Exhibit and such other information as may be required by Lender.
If Borrower wishes that Lender convert an amount of a proposed
Revolving Credit Advance into US Dollars before depositing the
proceeds of the Revolving Credit Advance into a Disbursement Account,
Borrower shall make its request in the applicable Notice of Revolving
Credit Advance. If Borrower is entitled to such requested Revolving
Credit Advance, Lender shall deposit into Borrower's US Dollar
Disbursement Account the amount of US Dollars that, at the then
applicable Currency Exchange Rate, is equivalent to the amount of the
requested Revolving Credit Advance that Borrower has requested that
Lender convert into US Dollars. Lender shall notify Borrower of the
Currency Exchange Rate on or prior to the first Business Day of each
calendar month that is applicable during such calendar month for the
purpose of such currency conversions.
(b) Borrower shall execute and deliver to Lender a note to evidence the
Revolving Loan Commitment. Such note shall be in the principal amount
of the Revolving Loan Commitment, dated the Closing Date and
substantially in the form of Exhibit 1.1(1)(b) (the "REVOLVING NOTE").
The Revolving Note shall represent the obligation of Borrower to pay
the amount of the Revolving Loan Commitment or, if less, the aggregate
unpaid principal amount of all Revolving Credit Advances to Borrower,
together with interest thereon as prescribed in Section 1.5. The
entire unpaid balance of the Revolving Loan and all other
non-contingent Obligations shall be immediately due and payable in
full in immediately available funds on the Commitment Termination
Date.
(2) TERM LOAN
(a) Subject to the terms and conditions hereof, Lender agrees to make a
term loan on the Closing Date to Borrower (the "TERM LOAN") in the
original principal amount of the Term Loan Commitment. The Term Loan
shall be evidenced by a promissory note substantially in the form of
Exhibit 1.1(2) (the "TERM NOTE"), and Borrower shall execute and
deliver its Term Note to Lender. The Term Note shall represent the
obligation of Borrower to pay the amount of the Term Loan Commitment,
together with interest thereon as prescribed in Section 1.5.
(b) Borrower shall repay to Lender the principal amount of the Term Loan
in eleven (11) consecutive quarterly installments on the first day of
February, May, August and November of each year, commencing November
1, 1998, as follows:
Payment Date Installment Amount
------------ ------------------
November 1, 1998 $357,143
<PAGE>
-3-
February 1, 1999; May 1, 1999; $357,143
August 1, 1999; November 1, 1999
February 1, 2000; May 1, 2000; $357,143
August 1, 2000; November 1, 2000
February 1, 2001; May 1, 2001 $357,143
Notwithstanding the foregoing, the aggregate outstanding principal
balance of the Term Loan shall be due and payable to Lender in full
for value on the Commitment Termination Date, if not sooner paid in
full.
(3) RELIANCE ON NOTICES. Lender shall be entitled to rely upon, and shall be
fully protected in relying upon, any Notice of Revolving Credit Advance or
similar notice believed by Lender to be genuine. Lender may assume that each
Person executing and delivering such a notice was duly authorized, unless the
responsible individual acting thereon for Lender has actual knowledge to the
contrary.
1.2 LETTERS OF CREDIT. Subject to and in accordance with the terms and
conditions contained herein and in Annex B, Borrower shall have the right to
request, and Lender agrees to incur, Letter of Credit Obligations in respect of
Borrower.
1.3 PREPAYMENTS.
(1) VOLUNTARY PREPAYMENTS. Borrower may at any time on at least five (5) days'
prior written notice to Lender voluntarily prepay all or part of the Term Loan
without bonus or penalty. In addition, Borrower may at any time on at least ten
(10) days' prior written notice to Lender terminate the Revolving Loan
Commitment; provided that upon such termination, all Loans and other Obligations
shall be immediately due and payable in full. Any such voluntary prepayment and
any such termination of the Revolving Loan Commitment must be accompanied by the
payment of the fee required by Section 1.9(5), if any. Upon any such prepayment
and termination of the Revolving Loan Commitment, Borrower's right to request
Revolving Credit Advances, or request that Letter of Credit Obligations be
incurred on its behalf, shall simultaneously be terminated. Any partial
prepayments of the Term Loan made by Borrower shall be applied to prepay the
scheduled installments of the Term Loan in inverse order of maturity.
(2) MANDATORY PREPAYMENTS.
(a) If at any time the outstanding balance of the Revolving Loan exceeds
the lesser of (A) the Maximum Amount and (B) the Borrowing Base less
$500,000, Borrower shall immediately repay the aggregate outstanding
Revolving Credit Advances to the extent required to eliminate such
excess. If any such excess remains after repayment in full of the
aggregate outstanding Revolving Credit Advances,
<PAGE>
-4-
Borrower shall provide cash collateral for the Letter of Credit
Obligations in the manner set forth in Annex B to the extent required
to eliminate such excess.
(b) Immediately upon receipt by Borrower of proceeds of any asset
disposition (including condemnation proceeds, but excluding proceeds
of asset dispositions permitted by Section 6.8(1)), Borrower shall
prepay the Loans in an amount equal to all such proceeds, net of (A)
commissions and other reasonable and customary transaction costs, fees
and expenses properly attributable to such transaction and payable by
Borrower in connection therewith (in each case, paid to
non-Affiliates), (B) transfer taxes, (C) amounts payable to holders of
senior Liens (to the extent such Liens constitute Permitted
Encumbrances hereunder), if any, and (D) an appropriate reserve for
income taxes in accordance with GAAP in connection therewith. Any such
prepayment shall be applied in accordance with clause (3) below, as
applicable. ----------
(c) If Borrower issues Stock, no later than the Business Day following the
date of receipt of the proceeds thereof, Borrower shall prepay the
Loans in an amount equal to all such proceeds. Any such prepayment
shall be applied in accordance with clause (3) below.
(3) APPLICATION OF CERTAIN MANDATORY PREPAYMENTS.
(a) Any prepayments made by Borrower pursuant to clause (2)(b) (other than
with the proceeds of the sale of the Danforth Property which shall be
applied in accordance with clause 3(b) below) or (2)(c) above shall be
applied as follows: first, to Fees and reimbursable expenses of Lender
then due and payable pursuant to any of the Loan Documents; second, to
interest then due and payable on the Term Loan; third, to prepay the
scheduled installments of the Term Loan in inverse order of maturity,
until such Loan shall have been prepaid in full; fourth, to interest
then due and payable on the Revolving Credit Advances; fifth, to the
outstanding principal balance of the Revolving Credit Advances until
the same shall have been paid in full; and sixth, to any Letter of
Credit Obligations, to provide cash collateral therefor in the manner
set forth in Annex B, until all such Letter of Credit Obligations have
been fully cash collateralized in the manner set forth in Annex B;
provided that, with respect to prepayments by Borrower pursuant to
clause (2)(c) above, the fourth, fifth and sixth applications of such
prepayments provided for above shall instead be second, third and
fourth applications, respectively, and the second and third
applications of such prepayments provided for above shall instead be
fifth and sixth applications, respectively. The Revolving Loan
Commitment shall not be permanently reduced by the amount of any such
prepayments.
(b) Any prepayments made by Borrower pursuant to clause (2)(b) with the
proceeds of the sale of the Danforth Property shall be applied as
follows: first, to Fees and reimbursable expenses of Lender then due
and payable pursuant to any of the
<PAGE>
-5-
Loan Documents; second, to interest then due and payable on the
Revolving Credit Advances; third, to the outstanding principal balance
of the Revolving Credit Advances until the same have been paid in
full; and fourth, if a Default or an Event of Default has occurred
that is continuing, to any Letter of Credit Obligations, to provide
cash collateral therefor in the manner set forth in Annex B, until all
such Letter of Credit Obligations have been fully cash collateralized
in the manner set forth in Annex B; provided that, for greater
certainty, if no Default or Event of Default has occurred that is
continuing, Lender shall deposit the proceeds (if any) remaining after
the first through third applications in a Disbursement Account
designated by Borrower. The Revolving Loan Commitment shall not be
permanently reduced by the amount of any such prepayments.
(4) APPLICATION OF PREPAYMENTS FROM INSURANCE PROCEEDS. Prepayments from
insurance proceeds in accordance with Section 5.4(3) shall be applied as
follows: (a) insurance proceeds from casualties or losses to cash or Inventory
shall be applied to the Revolving Credit Advances; and (b) insurance proceeds
from casualties or losses to Equipment, Fixtures and Real Estate shall be
applied to scheduled installments of the Term Loan in inverse order of maturity.
The Revolving Loan Commitment shall not be permanently reduced by the amount of
any such prepayments. If the precise amount of insurance proceeds allocable to
Inventory as compared to Equipment, Fixtures and Real Estate are not otherwise
determined, the allocation and application of those proceeds shall be determined
by Lender, acting reasonably.
(5) NO CONSENT CONSTRUED. Nothing in this Section 1.3 shall be construed to
constitute Lender's consent to any transaction referred to in clauses (2)(b) and
(2)(c) above which is not permitted by other provisions of this Agreement or the
other Loan Documents.
1.4 USE OF PROCEEDS. Borrower shall utilize the proceeds of the Term Loan and
the Revolving Loan solely for financing Borrower's Capital Improvement Program,
the Refinancing (and to pay any related transaction expenses), Borrower's
ordinary working capital requirements and Borrower's general corporate needs
(but excluding in any event the making of any Restricted Payment not
specifically permitted by Section 6.13). Disclosure Schedule (1.4) contains a
description of Borrower's sources and uses of funds as of the Closing Date,
including Loans and Letter of Credit Obligations to be made or incurred on that
date, and a funds flow memorandum detailing how funds from each source are to be
transferred to particular uses.
1.5 INTEREST AND APPLICABLE MARGINS.1.5INTEREST AND APPLICABLE MARGINS.
(1) Borrower shall pay interest to Lender in arrears on each applicable Interest
Payment Date, at the following rates: (a) with respect to the Revolving Credit
Advances, the Index Rate plus 2.25% per annum based on the aggregate Revolving
Credit Advances outstanding from time to time during the most recently ended
month prior to that Interest Payment Date; and (b) with respect to the Term
Loan, the Index Rate plus 2.50% per annum based on the aggregate amount of the
Term Loan outstanding from time to time during the most recently ended month
prior to that Interest Payment Date.
<PAGE>
-6-
(2) EXTENSION TO NEXT BUSINESS DAY. If any payment on any Loan becomes due and
payable on a day other than a Business Day, the maturity thereof will be
extended to the next succeeding Business Day and, with respect to payments of
principal, interest thereon shall be payable at the then applicable rate during
such extension.
(3) CALCULATIONS ON 365 YEAR. All computations of Fees calculated on a per annum
basis and interest shall be made by Lender on the basis of a three hundred and
sixty-five (365) day year, in each case for the actual number of days occurring
in the period for which such interest and Fees are payable. The Index Rate shall
be fixed by the Lender monthly in advance. Each determination by Lender of an
interest rate and Fees hereunder shall be conclusive, absent manifest error.
(4) INTEREST UPON PAYMENT DEFAULT. Upon a default in the payment of interest or
any other amount (other than principal) due under this Agreement or any of the
other Loan Documents to which Borrower is a party, Borrower shall pay interest
on such overdue amount, both before and after judgment, at a rate per annum
equal to (1) in the case of overdue interest, the rate of interest payable under
this Section 1.5 on the principal amount to which such overdue interest relates
and (2) in the case of all such other overdue amounts (which overdue amounts,
for greater certainty, shall not include overdue principal or interest in any
case), the Index Rate plus 4.50%, in each case, calculated on a daily basis from
the date such amount becomes overdue for so long as such amount remains overdue
and on the basis of the actual number of days elapsed in a 365 day year. Such
interest shall be payable upon demand by Lender. From and after the occurrence
of any Event of Default, the Letter of Credit Fee shall be increased by two
percent (2%) per annum.
(5) CRIMINAL RATES OF INTEREST. If any provision of this Agreement or any of the
other Loan Documents would obligate Borrower to make any payment of interest or
other amount payable to Lender in an amount or calculated at a rate which would
be prohibited by law or would result in a receipt by Lender of interest at a
criminal rate (as such terms are construed under the Criminal Code (Canada))
then, notwithstanding such provision, such amount or rate shall be deemed to
have been adjusted with retroactive effect to the maximum amount or rate of
interest, as the case may be, as would not be so prohibited by law or so result
in a receipt by Lender of interest at a criminal rate, such adjustment to be
effected, to the extent necessary, as follows: (1) firstly, by reducing the
amount or rate of interest required to be paid to Lender under this Section 1.5;
and (2) thereafter, by reducing any fees, commissions, premiums and other
amounts required to be paid to Lender which would constitute interest for
purposes of Section 347 of the Criminal Code (Canada). Notwithstanding the
foregoing, and after giving effect to all adjustments contemplated thereby, if
Lender shall have received an amount in excess of the maximum permitted by that
section of the Criminal Code (Canada), then Borrower shall be entitled, by
notice in writing to Lender, to obtain reimbursement from Lender in an amount
equal to such excess, and pending such reimbursement, such amount shall be
deemed to be an amount payable by Lender to Borrower. Any amount or rate of
interest referred to in this Section 1.5(5) shall be determined in accordance
with generally accepted actuarial practices and principles as an effective
annual rate of interest over the term that any Loan remains outstanding on the
assumption that any charges, fees or expenses that fall within the meaning of
"INTEREST" (as defined in the Criminal Code (Canada)) shall, if they relate to a
specific period of time, be pro-rated over that period of time
<PAGE>
-7-
and otherwise be pro-rated over the period from the Closing Date to the
Termination Date and, in the event of a dispute, a certificate of a Fellow of
the Canadian Institute of Actuaries appointed by Lender shall be conclusive for
the purposes of such determination.
(6) INTEREST ACT. For purposes of disclosure pursuant to the Interest Act
(Canada), the annual rates of interest or fees to which the rates of interest or
fees provided in this Agreement and the other Loan Documents (and stated herein
or therein, as applicable, to be computed on the basis of a 365 day year or any
other period of time less than a calendar year) are equivalent are the rates so
determined multiplied by the actual number of days in the applicable calendar
year and divided by 365 or such other period of time, respectively.
1.6 ELIGIBLE ACCOUNTS. Based on the most recent Borrowing Base Certificate
delivered by Borrower to Lender and on other information available to Lender,
Lender shall in its reasonable credit judgment determine which Accounts of
Borrower shall be "ELIGIBLE ACCOUNTS" for purposes of this Agreement. In
determining whether a particular Account constitutes an Eligible Account, Lender
shall not include any such Account to which any of the exclusionary criteria set
forth below applies. Lender reserves the right, at any time and from time to
time after the Closing Date, to adjust any such criteria, to establish new
criteria and to adjust advance rates with respect to Eligible Accounts, in its
reasonable credit judgment. Eligible Accounts shall not include any Account of
Borrower:
(1) which does not arise from the sale of goods or the performance of
services by Borrower in the ordinary course of its business;
(2) upon which (A) Borrower's right to receive payment is not absolute or
is contingent upon the fulfilment of any condition whatsoever or (B)
as to which Borrower is not able to bring suit or otherwise enforce
its remedies against the Account Debtor through judicial process, or
(C) if the Account represents a progress billing consisting of an
invoice for goods sold or used or services rendered pursuant to a
contract under which the Account Debtor's obligation to pay that
invoice is subject to Borrower's completion of further performance
under such contract or is subject to the equitable lien of a surety
bond issuer;
(3) to the extent that any defence, counterclaim, set-off or dispute is
asserted as to such Account;
(4) that is not a true and correct statement of bona fide indebtedness
incurred in the amount of the Account for merchandise sold to or
services rendered and accepted by the applicable Account Debtor;
(5) with respect to which an invoice, acceptable to Lender in form and
substance, has not been sent to the applicable Account Debtor;
(6) that (a) is not owned by Borrower or (b) is subject to any right,
claim, security interest (or applicable equivalent) or other interest
of any other Person, other than Liens in favour of Lender and Prior
Claims that are unregistered and that secure
<PAGE>
-8-
amounts that are not yet due and payable;
(7) that arises from a sale to any director, officer, other employee or
Affiliate of Borrower, or to any entity which has any common officer
or director with Borrower (other than the Canadian Polystyrene
Recycling Association so long as a director thereof is also a director
of Borrower);
(8) that is the obligation of an Account Debtor that is the Canadian
Government (Her Majesty the Queen in Right of Canada) or a political
subdivision thereof, or any province or territory, or any municipality
or department, agency or instrumentality thereof, or that is the
United States government or a political subdivision thereof, or any
state or municipality or department, agency or instrumentality
thereof, unless Lender, in its sole discretion, has agreed to the
contrary in writing, the Account is assignable by way of security and
Borrower, if necessary or desirable, has complied with the Financial
Administration Act (Canada), and any amendments thereto, or the
Federal Assignment of Claims Act of 1940 (United States), and any
amendments thereto, or any applicable provincial or state statute or
municipal ordinance of similar purpose and effect, as applicable, with
respect to such obligation;
(9) that is the obligation of an Account Debtor located in a foreign
country other than the United States of America or that is located in
Newfoundland or the Northwest Territories unless payment thereof is
assured by a letter of credit assigned and delivered to Lender,
satisfactory to Lender as to form, amount and issuer;
(10) to the extent Borrower is liable for goods sold or services rendered
by the applicable Account Debtor to Borrower but only to the extent of
the potential offset;
(11) that arises with respect to goods which are delivered on a
bill-and-hold, cash-on-delivery basis or placed on consignment,
guaranteed sale or other terms by reason of which the payment by the
Account Debtor is or may be conditional;
(12) that is in default; provided, that, without limiting the generality of
the foregoing, an Account shall be deemed in default upon the
occurrence of any of the following:
(a) it is not paid within the earlier of: sixty (60) days following
its due date or ninety (90) days following its original invoice
date;
(b) if any Account Debtor obligated upon such Account suspends
business, makes a general assignment for the benefit of creditors
or fails to pay its debts generally as they come due or is
otherwise insolvent; or
(c) if any assignment or petition is filed by or against any Account
Debtor obligated upon such Account under any Insolvency Laws;
<PAGE>
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(13) which is the obligation of an Account Debtor if fifty percent (50%) or
more of the dollar amount of all Accounts owing by that Account Debtor
are ineligible under the other criteria set forth in this Section 1.6;
(14) as to which Lender's interest therein is not a first priority
perfected Lien (subject only to Prior Claims that are unregistered and
that secure accounts that are not yet due and payable);
(15) as to which any of the representations or warranties pertaining to
Accounts set forth in any of the Loan Documents is untrue;
(16) to the extent such Account is evidenced by a judgment, Instrument or
Chattel Paper;
(17) to the extent such Account exceeds any credit limit established by
Lender, in its reasonable discretion;
(18) to the extent that such Account, together with all other Accounts
owing by such Account Debtor and its Affiliates as of any date of
determination exceed thirty-five percent (35%) of all Eligible
Accounts;
(19) which is payable in any currency other than Canadian Dollars or US
Dollars; or
(20) which is unacceptable to Lender in its reasonable credit judgment.
1.7 ELIGIBLE INVENTORY AND ELIGIBLE WIP INVENTORY. Based on the most recent
Borrowing Base Certificate delivered by Borrower to Lender and on other
information available to Lender, Lender shall in its reasonable credit judgment
determine which raw material and finished goods Inventory of Borrower shall be
"Eligible Inventory" and which work-in-process Inventory of Borrower shall be
"Eligible WIP Inventory" for purposes of this Agreement. In determining whether
any particular Inventory constitutes Eligible Inventory or Eligible WIP
Inventory, Lender shall not include any such Inventory to which any of the
exclusionary criteria set forth below applies; provided that, with reference to
Eligible WIP Inventory, clause (6) below shall be read without reference to
"work-in-process Inventory" and clause (8) below shall instead be read as: "is
not of a type which, if finished in the ordinary course, would be held for sale
in the ordinary course of Borrower's business". Lender reserves the right, at
any time and from time to time after the Closing Date, to adjust any such
criteria, to establish new criteria and to adjust advance rates with respect to
Eligible Inventory and Eligible WIP Inventory in its reasonable credit judgment.
Neither Eligible Inventory nor Eligible WIP Inventory (subject to the proviso in
the second sentence of this Section 1.7) shall include any Inventory of Borrower
that:
(1) is not owned by Borrower free and clear of all Liens and rights of any
other Person (including the rights of a purchaser that has made
progress payments and the rights of a surety that has issued a bond to
assure Borrower's performance with respect to that Inventory), except
the Liens in favour of Lender and Prior Claims that are unregistered
and that secure amounts that are not yet due and
<PAGE>
-10-
payable;
(2) is (a) not located on premises owned by Borrower unless (A) stored
with a bailee, warehouseman or similar Person or (B) located on
premises leased by Borrower, and in the case of clauses (A) and (B)
Lender has given its prior consent thereto and (x) a satisfactory
bailee letter or landlord waiver has been delivered to Lender, or (y)
Reserves satisfactory to Lender have been established with respect
thereto, or (b) located at any site if the aggregate book value of
Inventory at any such location is less than $100,000;
(3) is placed on consignment or is in transit;
(4) is covered by a negotiable document of title, unless such document has
been delivered to Lender with all necessary endorsements, free and
clear of all Liens except those in favour of Lender;
(5) in Lender's reasonable determination, is excess, obsolete, unsalable,
shopworn, seconds, damaged or unfit for sale;
(6) consists of display items or packing or shipping materials,
manufacturing supplies (which, for greater certainty, do not include
raw materials used for manufacturing finished goods Inventory or
packing or shipping materials in which finished goods Inventory have
been packed), work-in-process Inventory or replacement parts;
(7) consists of goods which have been returned by the buyer and are not
being held for resale (provided that, for greater certainty, goods
that are excess, obsolete, unsalable, shopworn, seconds, damaged or
otherwise unfit for sale shall not constitute goods being held for
resale);
(8) is not of a type held for sale in the ordinary course of Borrower's
business;
(9) as to which Lender's Lien therein is not a first priority perfected
Lien (subject only to Prior Claims that are unregistered and that
secure amounts that are not yet due and payable);
(10) as to which any of the representations or warranties pertaining to
Inventory set forth in this Agreement or any other Loan Document is
untrue;
(11) consists of Hazardous Materials or goods that can be transported or
sold only with licenses that are not readily available;
(12) is not covered by casualty insurance acceptable to Lender; or
(13) is otherwise unacceptable to Lender in its reasonable credit judgment.
1.8 CASH MANAGEMENT SYSTEMS. On or prior to the Closing Date, Borrower will
establish
<PAGE>
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and will maintain until the Termination Date, the cash management systems
described in Annex C (the "CASH MANAGEMENT SYSTEMS").
1.9 FEES.
(1) Borrower shall pay to Lender a closing fee equal to $150,000, less, the sum
of (a) the commitment letter delivery fee of $60,000 and (b) the amount, if any,
by which the underwriting deposit of $25,000 exceeds Transaction Expenses.
(2) As additional compensation for Lender's Revolving Loan Commitment, Borrower
agrees to pay to Lender, in arrears, on the first Business Day of each month
prior to the Commitment Termination Date and on the Commitment Termination Date,
a fee for Borrower's non-use of available funds in an amount equal to three
eighths of one percent (.375%) per annum (calculated on the basis of a 365 day
year for actual days elapsed) of the difference between (x) the Maximum Amount
and (y) the average for the period of the daily closing balances of the
Revolving Loan outstanding during the period for which the such fee is due.
(3) Borrower shall pay to Lender (in advance) on the Closing Date and on each
anniversary of the Closing Date until the Termination Date, a collateral
monitoring fee in the amount of $20,000.
(4) Borrower shall pay to Lender field audit charges of US$600 per diem per
auditor plus actual out-of-pocket expenses in connection with Lender's field
examinations prior to the Closing Date and in connection with up to two (2)
field examinations by Lender in each consecutive twelve (12) month period ending
after the Closing Date (unless a Default or an Event of Default has occurred and
is continuing in which case the foregoing limitation shall not apply).
(5) If Borrower terminates the Revolving Loan Commitment prior to the first
anniversary of the Closing Date, whether voluntarily or involuntarily and
whether before or after acceleration of the Obligations, Borrower shall pay to
Lender, as liquidated damages and compensation for the costs of being prepared
to make funds available hereunder, $200,000. Notwithstanding the foregoing, no
prepayment fee shall be payable by Borrower upon a mandatory prepayment made
pursuant to Sections 1.3(2); provided that Borrower does not permanently reduce
the Revolving Loan Commitment upon any such prepayment and, in the case of
prepayments made pursuant to Section 1.3(2)(b) or 1.3(2)(c), the transaction
giving rise to the applicable prepayment is expressly permitted under Section 6.
(6) The fees payable under Sections 1.9(1) and 1.9(3) shall be fully earned on
the date of required payment thereof and shall be non-refundable when paid.
1.10 RECEIPT OF PAYMENTS. Borrower shall make each payment under this Agreement
for value not later than 2:00 p.m. (Toronto time) on the day when due to the
applicable Collection Account in the currency in which the Obligation is
denominated. For greater certainty, Revolving Credit Advances constitute
Obligations denominated in Canadian Dollars. For the purpose of computing
interest as of any date, all payments shall be deemed received on the day
<PAGE>
-12-
following the day of receipt of value for such payments in the applicable
Collection Account. For the purpose of computing Fees and determining Borrowing
Availability or Net Borrowing Availability as of any date, all payments shall be
deemed received on the day of receipt of value for such payments in the
applicable Collection Account prior to 2:00 p.m. (Toronto time) and payments
received after 2:00 p.m. (Toronto time) on any Business Day shall be deemed to
have been received on the following Business Day.
1.11 APPLICATION AND ALLOCATION OF PAYMENTS.1.11 APPLICATION AND ALLOCATION OF
PAYMENTS.
(1) So long as no Default or Event of Default shall have occurred and be
continuing, (a) payments consisting of proceeds of Accounts received in the
ordinary course of business shall be applied to the Revolving Loan; (b) payments
matching specific scheduled payments then due shall be applied to those
scheduled payments; (iii) voluntary prepayments shall be applied as determined
by Borrower, subject to the provisions of Section 1.3(1); and mandatory
prepayments shall be applied as set forth in Section 1.3(3) or 1.3(4). As to
each other payment, and as to all payments made when a Default or Event or
Default shall have occurred and be continuing or following the Commitment
Termination Date, Borrower hereby irrevocably waives the right to direct the
application of any and all payments received from or on behalf of Borrower, and
Borrower hereby irrevocably agrees that Lender shall have the continuing
exclusive right to apply any and all such payments against the Obligations as
Lender may deem advisable notwithstanding any previous entry by Lender in the
Loan Account or any other books and records. In the absence of a specific
determination by Lender with respect thereto, payments shall be applied to
amounts then due and payable in the following order: (A) to Fees and Lender's
expenses reimbursable hereunder; (B) to interest on the Loans, ratably in
proportion to the interest accrued as to each Loan; (C) to principal payments on
the Loans and to provide cash collateral for Letter of Credit Obligations in the
manner described in Annex B, ratably to the aggregate, combined principal
balance of the Loans and outstanding Letter of Credit Obligations; and (D) to
all other Obligations to the extent reimbursable under Section 11.3.
(2) Lender is authorized to, and at its sole election may, charge to the
Revolving Loan balance on behalf of Borrower and cause to be paid all Fees,
expenses, Charges, costs (including insurance premiums in accordance with
Section 5.4(1)) and interest and principal, other than principal of the
Revolving Loan, owing by Borrower under this Agreement or any of the other Loan
Documents if and to the extent Borrower fails to pay any such amounts promptly
as and when due, even if such charges would cause the Revolving Loan to exceed
Borrowing Availability (and for the purpose of this Section 1.11(2), Lender may
convert Obligations denominated in US Dollars into the Equivalent Amount of
Canadian Dollars). At Lender's option and to the extent permitted by law, any
charges so made shall constitute part of the Revolving Loan hereunder. Lender
shall provide to Borrower supporting documentation for such charges within 30
days of Borrower's request therefor.
1.12 LOAN ACCOUNT AND ACCOUNTING. Lender shall maintain a loan account (the
"LOAN ACCOUNT") on its books to record: all Revolving Credit Advances and the
Term Loan, all payments made by Borrower and all other debits and credits as
provided in this Agreement with respect to the Loans or any other Obligations.
All entries in the Loan Account shall be made in
<PAGE>
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accordance with Lender's customary accounting practices as in effect from time
to time. The balance in the Loan Account, as recorded on Lender's most recent
printout or other written statement, shall, absent manifest error, be
presumptive evidence of the amounts due and owing to Lender by Borrower;
provided that any failure to so record or any error in so recording shall not
limit or otherwise affect Borrower's duty to pay the Obligations. Lender shall
render to Borrower a monthly accounting of transactions with respect to the
Loans setting forth the balance of the Loan Account. Unless Borrower notifies
Lender in writing of any objection to any such accounting (specifically
describing the basis for such objection), within thirty (30) days after the date
thereof, each and every such accounting shall, absent manifest error, be deemed
final, binding and conclusive upon Borrower in all respects as to all matters
reflected therein. Only those items expressly objected to in such notice shall
be deemed to be disputed by Borrower. Notwithstanding any provision herein
contained to the contrary, Lender may elect (which election may be revoked) to
dispense with the issuance of Notes to Lender and may rely on the Loan Account
as evidence of the amount of Obligations from time to time owing to it.
1.13 INDEMNITY. Borrower shall indemnify and hold harmless each of Lender and
its Affiliates, and each such Person's respective officers, directors,
employees, attorneys, agents and representatives (each, an "INDEMNIFIED
PERSON"), from and against any and all suits, actions, proceedings, claims,
damages, losses, liabilities and expenses (including reasonable legal fees, on a
solicitor and client basis, and disbursements and other costs of investigation
or defence, including those incurred upon any appeal) which may be instituted or
asserted against or incurred by any such Indemnified Person as the result of
credit having been extended, suspended or terminated under this Agreement and
the other Loan Documents and the administration of such credit, and in
connection with or arising out of the transactions contemplated hereunder and
thereunder and any actions or failures to act in connection therewith, including
any and all Environmental Liabilities and legal costs and expenses arising out
of or incurred in connection with disputes between or among any parties to any
of the Loan Documents (collectively, "INDEMNIFIED LIABILITIES"); provided, that
Borrower shall not be liable for any indemnification to an Indemnified Person to
the extent that any such suit, action, proceeding, claim, damage, loss,
liability or expense results from that Indemnified Person's gross negligence or
willful misconduct. NO INDEMNIFIED PERSON SHALL BE RESPONSIBLE OR LIABLE TO ANY
OTHER PARTY TO ANY LOAN DOCUMENT, ANY SUCCESSOR, ASSIGNEE OR THIRD PARTY
BENEFICIARY OF SUCH PERSON OR ANY OTHER PERSON ASSERTING CLAIMS DERIVATIVELY
THROUGH SUCH PARTY, FOR INDIRECT, PUNITIVE, EXEMPLARY OR CONSEQUENTIAL DAMAGES
WHICH MAY BE ALLEGED AS A RESULT OF CREDIT HAVING BEEN EXTENDED, SUSPENDED OR
TERMINATED UNDER ANY LOAN DOCUMENT OR AS A RESULT OF ANY OTHER TRANSACTION
CONTEMPLATED HEREUNDER OR THEREUNDER.
1.14 ACCESS. Borrower shall, during normal business hours, from time to time
upon one (1) Business Day's prior notice as frequently as Lender determines to
be appropriate: (1) provide Lender and any of its officers, employees and agents
access to its properties, facilities, advisors and employees (including
officers) and to the Collateral, (2) permit Lender, and any of its officers,
employees and agents, to inspect, audit and make extracts from any of Borrower's
books and records, and (3) permit Lender, and its officers, employees and
agents, to inspect, review,
<PAGE>
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evaluate and make test verifications and counts of the Accounts, Inventory and
other Collateral of Borrower. If a Default or Event of Default shall have
occurred and be continuing or if access is necessary to preserve or protect the
Collateral as determined by the Lender, Borrower shall provide such access to
Lender at all times and without advance notice. Furthermore, so long as any
Event of Default shall have occurred and be continuing, Borrower shall provide
Lender with access to its suppliers and customers. Borrower shall make available
to Lender and its counsel, as quickly as is possible under the circumstances,
originals or copies of all books and records which Lender may reasonably
request. Borrower shall deliver any document or instrument necessary for Lender,
as it may from time to time request, to obtain records from any service bureau
or other Person which maintains records for Borrower, and shall maintain
duplicate records or supporting documentation on media, including computer tapes
and discs owned by Borrower.
1.15 TAXES.
(1) Any and all payments by Borrower hereunder or under the other Loan Documents
shall be made, in accordance with this Section 1.15, free and clear of and
without deduction for any and all present or future Taxes, excluding Taxes
imposed on or measured by the net income of Lender by the jurisdictions under
the laws of which it is organized or is resident or carries on business through
a permanent establishment located therein or any political subdivisions thereof.
If Borrower shall be required by law to deduct any Taxes from or in respect of
any sum payable hereunder or under any other Loan Document (excluding Taxes
imposed on or measured by the net income of Lender by the jurisdictions under
the laws of which it is organized or is resident or carries on business through
a permanent establishment located therein or any political subdivisions
thereof), (i) the sum payable shall be increased as much as shall be necessary
so that after making all required withholdings and deductions (including
withholdings and deductions applicable to additional sums payable under this
Section 1.15) Lender receives an amount equal to the sum it would have received
had no such withholdings or deductions been made, (ii) Borrower shall make such
deductions, and (iii) Borrower shall pay the full amount deducted to the
relevant taxing or other authority in accordance with applicable law. Within
thirty (30) days after the date of any payment of Taxes, Borrower shall furnish
to Lender the original or a certified copy of a receipt evidencing payment
thereof.
(2) In addition, Borrower agrees to pay any present or future Taxes that arise
from any payment made under this Agreement or under any other Loan Document or
from the execution, sale, transfer, delivery or registration of, or otherwise
with respect to, this Agreement, the other Loan Documents and any other
agreements and instruments contemplated hereby or thereby (except for Taxes
imposed on or measured by the net income of Lender by the jurisdictions under
the laws of which it is organized or is resident or carries on business through
a permanent establishment located therein or any political subdivisions
thereof). Lender agrees that, as promptly as reasonably practicable after it
becomes aware of any circumstances referred to above which would result in
additional payments under this Section 1.15(2), it shall notify Borrower
thereof.
(3) Borrower shall indemnify Lender for the full amount of the Taxes referred to
in this Section 1.15 (except for Taxes imposed on or measured by the net income
of Lender by the
<PAGE>
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jurisdictions under the laws of which it is organized or is resident or carries
on business through a permanent establishment located therein or any political
subdivisions thereof, but including, without limitation, any Taxes imposed by
any jurisdiction on amounts payable by Borrower under this Section 1.15) paid by
Lender and any liability (including penalties, interest and expenses) arising
therefrom or with respect thereto, whether or not such Taxes were correctly or
legally asserted. This indemnification shall be made within ten (10) days after
the date Lender makes written demand therefor.
1.16 CAPITAL ADEQUACY; INCREASED COSTS
(1) If Lender shall have determined that any law, treaty, governmental (or
quasi-governmental) rule, regulation, guideline or order regarding capital
adequacy, reserve requirements or similar requirements or compliance by Lender
with any request or directive regarding capital adequacy, reserve requirements
or similar requirements (whether or not having the force of law), in each case,
adopted after the Closing Date, from any central bank or other Governmental
Authority increases or would have the effect of increasing the amount of
capital, reserves or other funds required to be maintained by Lender and thereby
reducing the rate of return on Lender's capital as a consequence of its
obligations hereunder, then Borrower shall from time to time upon demand by
Lender pay to Lender additional amounts sufficient to compensate Lender for such
reduction. A certificate as to the amount of that reduction and showing the
basis of the computation thereof submitted by Lender to Borrower shall, absent
manifest error, be final, conclusive and binding for all purposes.
(2) If, due to either (a) the introduction of or any change in any law or
regulation (or any change in the interpretation thereof) or (b) the compliance
with any guideline or request from any central bank or other Governmental
Authority (whether or not having the force of law), in each case adopted after
the Closing Date, there shall be any increase in the cost to Lender of agreeing
to make or making, funding or maintaining any Loan, then Borrower shall from
time to time, upon demand by Lender pay to Lender additional amounts sufficient
to compensate Lender for such increased cost. A certificate as to the amount of
such increased cost, submitted to Borrower by Lender, shall be conclusive and
binding on Borrower for all purposes, absent manifest error. Lender agrees that,
as promptly as practicable after it becomes aware of any circumstances referred
to above which would result in any such increased cost, Lender shall, to the
extent not inconsistent with Lender's internal policies of general application,
use reasonable commercial efforts to minimize costs and expenses incurred by it
and payable to it by Borrower pursuant to this Section 1.16(2).
1.17 SINGLE LOAN. All Loans to Borrower and all of the other Obligations of
Borrower arising under this Agreement and the other Loan Documents shall
constitute one general obligation of Borrower secured, until the Termination
Date, by all of its Collateral.
SECTION 2 -- CONDITIONS PRECEDENTSECTION 2 -- CONDITIONS PRECEDENT
2.1 CONDITIONS TO THE INITIAL LOANS. Lender shall not be obligated to make any
Loan or incur any Letter of Credit Obligations on the Closing Date, or to take,
fulfill, or perform any
<PAGE>
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other action hereunder, until the following conditions have been satisfied or
provided for in a manner satisfactory to Lender, or waived in writing by Lender:
(1) CREDIT AGREEMENT; LOAN DOCUMENTS. This Agreement or counterparts hereof
shall have been duly executed by, and delivered to, Borrower and Lender; and
Lender shall have received such documents, instruments, agreements and legal
opinions as Lender shall reasonably request in connection with the transactions
contemplated by this Agreement and the other Loan Documents, including all those
listed in the Closing Checklist attached hereto as Annex D, each in form and
substance satisfactory to Lender.
(2) REPAYMENT OF PRIOR LENDER OBLIGATIONS; SATISFACTION OF OUTSTANDING L/CS. (a)
Lender shall have received a fully executed original of a pay-off letter
satisfactory to Lender confirming that all of the Prior Lender Obligations will
be repaid in full from the proceeds of the Term Loan and the initial Revolving
Credit Advance and all Liens upon any of the property of Borrower in favour of
Prior Lender (other than the Lien upon certain Equipment of Borrower securing a
maximum amount of $73,017 in respect of which Prior Lender has made a PPSA
filing set forth on Disclosure Schedule (6.7)) shall be terminated by Prior
Lender immediately upon such payment; and (b) all letters of credit issued or
guaranteed by Prior Lender shall have been cash collateralized, supported by a
guarantee of Lender or supported by a Letter of Credit issued pursuant to Annex
B, as mutually agreed upon by Lender, Borrower and Prior Lender.
(3) APPROVALS. Lender shall have received (a) satisfactory evidence that
Borrower has obtained all required consents and approvals of all Persons
including all requisite Governmental Authorities, to the execution, delivery and
performance of this Agreement and the other Loan Documents or (b) an officer's
certificate in form and substance satisfactory to Lender affirming that no such
consents or approvals are required.
(4) OPENING AVAILABILITY. The Eligible Accounts, Eligible Inventory and Eligible
WIP Inventory of Borrower supporting the initial Revolving Credit Advance and
the amount of the Reserves to be established on the Closing Date shall be
sufficient in value, as determined by Lender, to provide Borrower with borrowing
availability against the Borrowing Base, after giving effect to the initial
Revolving Credit Advance and Letter of Credit Obligations incurred (if any) (on
a pro forma basis, with trade payables being paid currently, and expenses and
liabilities being paid in the ordinary course of business and without
acceleration of sales), of at least $5,000,000.
(5) PAYMENT OF FEES. Borrower shall have paid the Fees required to be paid on
the Closing Date in the respective amounts specified in Section 1.9, and shall
have reimbursed Lender for all fees, costs and expenses of closing presented as
of the Closing Date.
(6) CAPITAL STRUCTURE: OTHER INDEBTEDNESS. The capital structure of Borrower and
the terms and conditions of all Indebtedness of Borrower shall be acceptable to
Lender in its sole discretion.
2.2 FURTHER CONDITIONS TO EACH LOAN Except as otherwise expressly provided
herein,
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Lender shall not be obligated to fund any Loan or incur any Letter of Credit
Obligation, if, as of the date thereof:
(1) Any representation or warranty by Borrower contained herein or in any
of the other Loan Documents shall be untrue or incorrect as of such
date, except to the extent that such representation or warranty
expressly relates to an earlier date and except for changes therein
expressly permitted or expressly contemplated by this Agreement; or
(2) Any event or circumstance having a Material Adverse Effect shall have
occurred since the date hereof; provided, however, that solely for
purposes of this Section 2.2(2) "Material Adverse Effect" means the
occurrence of any of the following: (i) in any calendar year Borrower
loses a customer the sales to whom for the immediately preceding
calendar year accounted for 40% or more of Borrower's total sales
volume for such immediately preceding year; (ii) Borrower is at any
time required to purchase 40% or more of its raw materials on a cash
on delivery or cash in advance basis as the result of one or more
vendor's unwillingness to extend credit to Borrower; (iii) within a 60
day time period, $5,000,000 or more of finished goods Inventory and/or
Inventory that Borrower has sold (valued at the lower of cost or
market) shall be subject to a product recall or similar product defect
occurrence; (iv) any officer of Borrower is convicted of a criminal
offence in connection with the operation of Borrower's business; (v)
the loss of production of 60% or more of Inventory for a period of
greater than 10 consecutive days other than for routine or scheduled
ordinary course maintenance; or (vi) any event occurs which negatively
impacts 50% or more of Borrower's revenues, which loss of revenues is
not fully covered by insurance; or
(3) (a) Any Event of Default shall have occurred and be continuing or
would result after giving effect to any Loan (or the incurrence of any
Letter of Credit Obligations), or (b) a Default shall have occurred
and be continuing or would result after giving effect to any Loan, and
Lender shall have determined not to make any Loan or incur any Letter
of Credit Obligation so long as that Default is continuing; or
(4) After giving effect to any Revolving Credit Advance or the incurrence
of any Letter of Credit Obligations, the outstanding principal amount
of the Revolving Loan would exceed the lesser of (a) the Borrowing
Base less $500,000 and (b) the Maximum Amount.
The request and acceptance by Borrower of the proceeds of any Loan or the
incurrence of any Letter of Credit Obligations shall be deemed to constitute, as
of the date of such request or acceptance, (c) a representation and warranty by
Borrower that the conditions in this Section 2.2 have been satisfied and (d) a
reaffirmation by Borrower of the granting and continuance of Lender's Liens
pursuant to the Collateral Documents.
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SECTION 3 -- REPRESENTATIONS AND WARRANTIES
To induce Lender to make the Loans and to incur Letter of Credit
Obligations, Borrower makes the following representations and warranties to
Lender, each and all of which shall survive the execution and delivery of this
Agreement.
3.1 CORPORATE EXISTENCE; COMPLIANCE WITH LAW. Borrower (1) is a corporation duly
incorporated, organized, validly existing and in good standing under the laws of
its jurisdiction of incorporation; (2) is duly qualified to conduct business and
is in good standing in each other jurisdiction where its ownership or lease of
property or the conduct of its business requires such qualification, except
where the failure to be so qualified would not result in exposure to losses,
damages or liabilities in excess of $50,000; (3) has the requisite corporate
power and authority and the legal right to own, pledge, mortgage, hypothecate or
otherwise encumber and operate its properties, to lease the property it operates
under lease and to conduct its business as now, heretofore and proposed to be
conducted; (4) subject to specific representations regarding Environmental Laws,
has all licenses, permits, consents or approvals from or by, and has made all
filings with, and has given all notices to, all Governmental Authorities having
jurisdiction, to the extent required for such ownership, operation and conduct;
(5) is in compliance with its constating documents and by-laws; and (6) subject
to specific representations set forth herein regarding Environmental Laws, tax
and other laws, is in compliance with all applicable provisions of law, except
where the failure to comply, individually or in the aggregate, could not
reasonably be expected to have a Material Adverse Effect.
3.2 EXECUTIVE OFFICES. As of the Closing Date, the current location of
Borrower's chief executive office and principal place of business is set forth
in Disclosure Schedule (3.2), and none of such locations has changed within the
twelve (12) months preceding the Closing Date.
3.3 CORPORATE POWER, AUTHORIZATION, ENFORCEABLE OBLIGATIONS. The execution,
delivery and performance by Borrower of the Loan Documents and the creation of
all Liens provided for therein: (1) are within Borrower's corporate power; (2)
have been duly authorized by all necessary or proper corporate and shareholder
action; (3) do not contravene any provision of Borrower's constating documents
or bylaws; (4) do not violate any law or regulation, or any order or decree of
any court or Governmental Authority; (5) do not conflict with or result in the
breach or termination of, constitute a default under or accelerate or permit the
acceleration of any performance required by, any indenture, mortgage, deed of
trust, lease, agreement or other instrument to which Borrower is a party or by
which Borrower or any of its property is bound; (6) do not result in the
creation or imposition of any Lien upon any of the property of Borrower other
than those in favour of Lender pursuant to the Loan Documents; and (7) do not
require the consent or approval of any Governmental Authority or any other
Person, except those referred to in Section 2.1(3), all of which will have been
duly obtained, made or complied with prior to the Closing Date. On or prior to
the Closing Date, each of the Loan Documents shall have been duly executed and
delivered by Borrower thereto and each such Loan Document shall then constitute
a legal, valid and binding obligation of Borrower enforceable against it in
accordance with its terms, subject to (i) applicable bankruptcy, insolvency,
moratorium, reorganization and other similar laws of general application
relating to or affecting the enforcement of creditors' rights
<PAGE>
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generally, (ii) the equitable and statutory powers of the courts of appropriate
jurisdiction to stay proceedings before them, to stay the execution of judgments
and to award costs, (iii) the discretion of such courts as to the granting of
remedies of specific performance and injunction and (iv) the restriction that
Canadian courts can only render judgments in Canadian currency.
3.4 FINANCIAL STATEMENTS AND PROJECTIONS.
(1) The unaudited balance sheet at February 28, 1998 (or such later date at
which an unaudited balance sheet is available that has been delivered to Lender)
and the related statements of income and cash flows of Borrower for the fiscal
period then ended, which are attached hereto as Disclosure Schedule 3.4(1), have
been prepared in accordance with GAAP consistently applied throughout the
periods covered (except as disclosed therein and for the absence of footnotes
and normal year-end audit adjustments) and present fairly in all material
respects the financial position of Borrower covered thereby as at the dates
thereof and the results of its operations and cash flows for the periods then
ended.
(2) The Projections delivered on the date hereof and attached hereto as
Disclosure Schedule 3.4(2) have been prepared by Borrower in light of the past
operations of its businesses, but including future payments of known contingent
liabilities (which have been disclosed therein), and reflect projections on a
month by month basis to September 30, 1999 and on a year by year basis to
September 30, 2002. The Projections are based upon estimates and assumptions
stated therein, all of which Borrower believes to be reasonable and fair in
light of current conditions and current facts known to Borrower and, as of the
Closing Date, reflect Borrower's good faith and reasonable estimates of the
future financial performance of Borrower and of the other information projected
therein for the period set forth therein.
3.5 MATERIAL ADVERSE EFFECT. Between February 28, 1998 (or such later date of
the most recent unaudited financial statements of Borrower delivered to Lender
prior to the Closing Date) and the Closing Date, (1) Borrower has not incurred
any obligations, contingent or non-contingent liabilities, liabilities for
Charges, long-term leases or unusual forward or long-term commitments which have
not been disclosed in writing to Lender and which, alone or in the aggregate,
could reasonably be expected to have a Material Adverse Effect, (2) no contract,
lease or other agreement or instrument has been entered into by Borrower or has
become binding upon Borrower's assets and no law or regulation applicable to
Borrower has been adopted which has had or could reasonably be expected to have
a Material Adverse Effect, and (3) Borrower is not in default and to the best of
Borrower's knowledge no third party is in default under any material contract,
lease or other agreement or instrument, which alone or in the aggregate could
reasonably be expected to have a Material Adverse Effect. Between February 28,
1998 (or such later date of the most recent unaudited financial statements of
Borrower delivered to Lender prior to the Closing Date) and the Closing Date, no
event has occurred, which alone or together with other events, could reasonably
be expected to have a Material Adverse Effect.
3.6 OWNERSHIP OF PROPERTY; LIENS As of the Closing Date, the real estate ("REAL
ESTATE") listed on Disclosure Schedule (3.6) constitutes all of the real
property owned, leased, subleased, or used by Borrower. Borrower owns good and
marketable fee simple title to all of its owned
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real estate, subject only to Permitted Encumbrances and Liens listed on
Disclosure Schedule (3.6), and valid and marketable leasehold interests in all
of its leased Real Estate, all as described on Disclosure Schedule (3.6), and
copies of all such leases or a summary of terms thereof satisfactory to Lender
have been delivered to Lender. Disclosure Schedule (3.6) further describes any
Real Estate with respect to which Borrower is a lessor, sublessor or assignor as
of the Closing Date. Borrower also has good and marketable title to, or valid
leasehold interests in, all of its personal properties and assets. As of the
Closing Date, none of the properties and assets of Borrower are subject to any
Liens other than Permitted Encumbrances, and there are no facts, circumstances
or conditions known to Borrower that may result in any Liens (including Liens
arising under Environmental Laws) other than Permitted Encumbrances. Borrower
has received all deeds, assignments, waivers, consents, non-disturbance and
recognition or similar agreements, bills of sale and other documents, and has
duly effected all recordings, filings and other actions necessary to establish,
protect and perfect Borrower's right, title and interest in and to all such Real
Estate and other properties and assets. Disclosure Schedule (3.6) also describes
any purchase options, rights of first refusal or other similar contractual
rights pertaining to any Real Estate. As of the Closing Date, no portion of
Borrower's Real Estate has suffered any material damage by fire or other
casualty loss which has not heretofore been repaired and restored in all
material respects to its original condition or otherwise remedied. As of the
Closing Date, all material permits required to have been issued or appropriate
to enable the Real Estate to be lawfully occupied and used for all of the
purposes for which they are currently occupied and used have been lawfully
issued and are in full force and effect.
3.7 LABOUR MATTERS. As of the Closing Date (1) no strikes or other material
labour disputes against Borrower are pending or, to Borrower's knowledge,
threatened; (2) hours worked by and payment made to employees of Borrower comply
in all material respects with each federal, provincial, local or foreign law
applicable to such matter; (3) all payments due from Borrower for employee
health and welfare insurance have been paid or accrued as a liability on the
books of Borrower; (4) except as set forth in Disclosure Schedule (3.7),
Borrower is not a party to or bound by any collective bargaining agreement,
management agreement, consulting agreement or (if the aggregate annual amount
payable thereunder would exceed $175,000) any employment agreement (and true and
complete copies of any agreements described on Disclosure Schedule (3.7) have
been delivered to Lender); (5) there is no organizing activity involving
Borrower pending or, to Borrower's knowledge, threatened by any labour union or
group of employees; (6) there are no certification applications pending or, to
Borrower's knowledge, threatened with any labour relations board, and no labour
organization or group of employees of Borrower has made a pending demand for
recognition; and (7) except as set forth in Disclosure Schedule (3.7), there are
no complaints or charges against Borrower pending or, to the knowledge of
Borrower, threatened to be filed with any Governmental Authority or arbitrator
based on, arising out of, in connection with, or otherwise relating to the
employment or termination of employment by Borrower of any individual.
3.8 VENTURES, SUBSIDIARIES AND AFFILIATES; OUTSTANDING STOCK AND INDEBTEDNESS.
Except as set forth in Disclosure Schedule (3.8), Borrower has no Subsidiaries,
is not engaged in any joint venture or partnership with any other Person, and is
not an Affiliate of any other Person. All of the issued and outstanding Stock of
Borrower is owned by each of the shareholders and in
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the amounts set forth on Disclosure Schedule (3.8). There are no outstanding
rights to purchase, options, warrants or similar rights or agreements pursuant
to which Borrower may be required to issue, sell, repurchase or redeem any of
its Stock or other equity securities. All outstanding Indebtedness of Borrower
as of the Closing Date is described in Section 6.3 (including Disclosure
Schedule 6.3).
3.9 GOVERNMENT REGULATION. Borrower is not subject to regulation under any
Canadian federal law, or any provincial, local or foreign law that restricts or
limits its ability to incur Indebtedness or to perform its obligations
hereunder. The making of the Loans by Lender to Borrower, the incurrence of the
Letter of Credit Obligations on behalf of Borrower, the application of the
proceeds thereof and repayment thereof will not violate any provision of any
such statute or any rule, regulation or order issued by or policy of any
securities regulatory authority or stock exchange.
3.10 TAXES. All tax returns, reports and statements, including information
returns, required by any Governmental Authority to be filed by Borrower have
been filed with the appropriate Governmental Authority and all Charges have been
paid prior to the date on which any fine, penalty, interest or late charge may
be added thereto for nonpayment thereof (or any such fine, penalty, interest,
late charge or loss has been paid), excluding Charges or other amounts being
contested in accordance with Section 5.2(2). Proper and accurate amounts have
been withheld by Borrower from payments to its employees, customers and other
applicable payees for all periods in full as required by all applicable Canadian
federal law and all applicable provincial, local and foreign law and such
withholdings have been timely paid to the respective Governmental Authorities.
Disclosure Schedule (3.10) sets forth as of the Closing Date in respect of
Borrower (i) those taxation years that have not yet been assessed by Revenue
Canada or the applicable provincial, local or foreign Governmental Authorities,
(ii) the taxation years that are currently being audited by Revenue Canada or
the applicable provincial, local or foreign Governmental Authorities, (iii) any
assessments or, to Borrower's knowledge, threatened assessments in connection
with such audit, or otherwise currently outstanding, and (iv) the most recent
taxation year that an audit by Revenue Canada or the applicable provincial,
local or foreign Governmental Authorities has been completed. Except as
described on Disclosure Schedule (3.10), Borrower has not executed or filed with
Revenue Canada or any other Governmental Authority any agreement or other
document extending, or having the effect of extending, the period for assessment
or collection of any Charges. As of the Closing Date, except as set forth on
Disclosure Schedule (3.10), Borrower and its predecessors are not liable for any
Charges: (a) under any agreement (including any tax sharing agreements) or (b)
to Borrower's knowledge, as a transferee.
3.11 CANADIAN PENSION AND BENEFIT PLANS. Disclosure Schedule (3.11) lists all
Canadian Benefit Plans (other than, for greater certainty, universal plans
created by and to which Borrower is obligated to contribute by statute) and
Canadian Pension Plans adopted by Borrower. The Canadian Pension Plans are duly
registered under the ITA and all other applicable laws which require
registration and no event has occurred which is reasonably likely to cause the
loss of such registered status. All material obligations of Borrower (including
fiduciary, funding, investment and administration obligations) required to be
performed in connection with the Canadian
<PAGE>
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Pension Plans and the funding agreements therefor have been performed in a
timely fashion. There have been no improper withdrawals or applications of the
assets of the Canadian Pension Plans or the Canadian Benefit Plans. There are no
outstanding disputes concerning the assets of the Canadian Pension Plans or the
Canadian Benefit Plans. Except as set forth on Disclosure Schedule (3.11), each
of the Canadian Pension Plans is fully funded on a solvency basis (using
actuarial methods and assumptions which are consistent with the valuations last
filed with the applicable Governmental Authorities and which are consistent with
generally accepted actuarial principles). Borrower does not employ any employees
outside Canada.
3.12 NO LITIGATION. No action, claim, lawsuit, demand, investigation or
proceeding is now pending or, to the knowledge of Borrower, threatened against
Borrower, before any Governmental Authority or before any arbitrator or panel of
arbitrators (collectively, "LITIGATION"), (1) which challenges Borrower's right
or power to enter into or perform any of its obligations under the Loan
Documents to which it is a party, or the validity or enforceability of any Loan
Document or any action taken thereunder, or (2) which has a reasonable risk of
being determined adversely to Borrower and which, if so determined, could have a
Material Adverse Effect. Except as set forth on Disclosure Schedule (3.12), as
of the Closing Date there is no Litigation pending or threatened which seeks
damages in excess of $100,000 or injunctive relief or alleges criminal
misconduct of Borrower.
3.13 BROKERS. No broker or finder acting on behalf of Borrower brought about the
obtaining, making or closing of the Loans, and Borrower does not have any
obligation to any Person in respect of any finder's or brokerage fees in
connection therewith.
3.14 INTELLECTUAL PROPERTY. As of the Closing Date, Borrower owns or has rights
to use all Intellectual Property necessary to continue to conduct its business
as now or heretofore conducted by it or proposed to be conducted by it, and each
Patent, Trademark, Copyright and License is listed, together with application or
registration numbers, as applicable, in Disclosure Schedule (3.14) hereto.
Borrower conducts its business and affairs without infringement of or
interference with any Intellectual Property of any other Person.
3.15 FULL DISCLOSURE. No information contained in this Agreement, any of the
other Loan Documents, any Projections, Financial Statements or Collateral
Reports or other reports from time to time delivered hereunder or any written
statement furnished by or on behalf of Borrower to Lender pursuant to the terms
of this Agreement contains or will contain any untrue statement of a material
fact or omits or will omit to state a material fact necessary to make the
statements contained herein or therein not misleading in light of the
circumstances under which they were made. The Liens granted to Lender pursuant
to the Collateral Documents will at all times be fully perfected first priority
Liens in and to the Collateral described therein, subject, as to priority, only
to Permitted Encumbrances.
3.16 ENVIRONMENTAL MATTERS.3.16 ENVIRONMENTAL MATTERS.
(1) Except as set forth in Disclosure Schedule (3.16), as of the Closing Date:
(a) the Real Estate is free of contamination from any Hazardous Material except
for such contamination that
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would not adversely impact the value or marketability of such Real Estate and
which would not result in Environmental Liabilities which could reasonably be
expected to exceed $250,000; (b) Borrower has not caused or suffered to occur
any Release of Hazardous Materials on, at, in, under, above, to, from or about
any of its Real Estate; (c) Borrower is and has been in compliance with all
Environmental Laws, except for such noncompliance which would not result in
Environmental Liabilities which could reasonably be expected to exceed $250,000;
(d) Borrower has obtained, and is in compliance with, all Environmental Permits
required by Environmental Laws for the operations of their respective businesses
as presently conducted or as proposed to be conducted, except where the failure
to so obtain or comply with such Environmental Permits would not result in
Environmental Liabilities which could reasonably be expected to exceed $250,000,
and all such Environmental Permits are valid, uncontested and in good standing;
(e) Borrower is not involved in operations or knows of any facts, circumstances
or conditions, including any Releases of Hazardous Materials, that are likely to
result in any Environmental Liabilities of Borrower which could reasonably be
expected to exceed $250,000, and Borrower has not permitted any current or
former tenant or occupant of the Real Estate to engage in any such operations;
(f) there is no Litigation arising under or related to any Environmental Laws,
Environmental Permits or Hazardous Material which seeks damages, penalties,
fines, costs or expenses in excess of $25,000 or injunctive relief, or which
alleges criminal misconduct by Borrower; (g) no notice has been received by
Borrower identifying it as a "potentially responsible party" or requesting
information under any Environmental Law, and to the knowledge of Borrower, there
are no facts, circumstances or conditions that may result in Borrower being
identified as a "potentially responsible party" under any Environmental Law; and
(h) Borrower has provided to Lender copies of all existing environmental
reports, reviews and audits and all written information pertaining to actual or
potential Environmental Liabilities, in each case relating to Borrower.
(2) Borrower hereby acknowledges and agrees that Lender is not, as of the
Closing Date, and has not ever been prior to the Closing Date, in control of any
of the Real Estate or Borrower's affairs.
3.17 INSURANCE. Disclosure Schedule (3.17) lists all insurance policies of any
nature maintained, as of the Closing Date, for current occurrences by Borrower,
as well as a summary of the terms of each such policy.
3.18 DEPOSIT AND DISBURSEMENT ACCOUNTS. Disclosure Schedule (3.18) lists all
banks and other financial institutions at which Borrower maintains deposits
and/or other accounts as of the Closing Date, including any Disbursement
Accounts, and such Schedule correctly identifies the name, address and telephone
number of each depository, the name in which the account is held, a description
of the purpose of the account, and the complete account number.
3.19 GOVERNMENT CONTRACTS. Except as set forth in Disclosure Schedule (3.19), as
of the Closing Date, Borrower is not a party to any contract or agreement with
any Governmental Authority and none of Borrower's Accounts is subject to any of
the requirements or proceedings applicable to assignments of accounts under the
Financial Administration Act (Canada), as amended, the Federal Assignment of
Claims Act of 1940, as amended (31 U.S.C. Section 3727),
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or any similar provincial, state or local law.
3.20 CUSTOMER AND TRADE RELATIONS. As of the Closing Date, there exists no
actual or, to Borrower's knowledge, threatened termination or cancellation of,
or any material adverse modification or change in: (1) the business relationship
of Borrower with any customer or group of customers whose purchases during the
preceding twelve (12) months caused them to be ranked among the ten largest
customers of Borrower; or (2) the business relationship of Borrower with any
supplier material to its operations.
3.21 AGREEMENTS AND OTHER DOCUMENTS. As of the Closing Date, Borrower has
provided to Lender or its counsel accurate and complete copies (or summaries) of
all of the following agreements or documents to which any it is subject and each
of which are listed on Disclosure Schedule (3.21): (1) supply agreements and
purchase agreements not terminable by Borrower within sixty (60) days following
written notice issued by Borrower and involving transactions in excess of
$1,000,000 per annum; (2) any lease of Equipment having a remaining term of one
year or longer and requiring aggregate rental and other payments in excess of
$250,000 per annum; (3) licenses and permits held by Borrower, the absence of
which could be reasonably likely to have a Material Adverse Effect; (4)
instruments or documents evidencing Indebtedness of Borrower and any security
interest (or applicable equivalent thereof) granted by Borrower with respect
thereto; and (5) instruments and agreements evidencing the issuance of any
equity securities, warrants, rights or options to purchase equity securities of
Borrower.
3.22 SOLVENCY. Both before and after giving effect to (1) the Loans and Letter
of Credit Obligations to be made or extended on the Closing Date or such other
date as Loans and Letter of Credit Obligations requested hereunder are made or
extended, (2) the disbursement of the proceeds of such Loans pursuant to the
instructions of Borrower, (3) the Refinancing and (4) the payment and accrual of
all transaction costs in connection with the foregoing, Borrower is Solvent.
3.23 YEAR 2000 REPRESENTATIONS. Borrower has completed a Year 2000 Assessment,
as disclosed to Lender.
SECTION 4 -- FINANCIAL STATEMENTS AND INFORMATION
4.1 REPORTS AND NOTICES.
(1) Borrower hereby agrees that from and after the Closing Date and until the
Termination Date, it shall deliver to Lender the Financial Statements, notices,
Projections and other information at the times, to the Persons and in the manner
set forth in Annex E.
(2) Borrower hereby agrees that from and after the Closing Date and until the
Termination Date, it shall deliver to Lender the various Collateral Reports
(including Borrowing Base Certificates in the form of Exhibit 4.1(2)) at the
times, to the Persons and in the manner set forth in Annex F.
4.2 COMMUNICATION WITH ACCOUNTANTS. Borrower authorizes Lender (with the prior
written
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consent of Borrower, which consent shall not be unreasonably withheld; provided
that, no such consent shall be required if an Event of Default has occurred that
is continuing) to communicate directly with its independent chartered public
accountants, including Arthur Andersen and Deloitte & Touche, and authorizes and
shall instruct those accountants and advisors to disclose and make available to
Lender any and all Financial Statements and other supporting financial
documents, schedules and information relating to Borrower (including copies of
any issued management letters) with respect to the business, financial condition
and other affairs of Borrower.
SECTION 5 -- AFFIRMATIVE COVENANTS
Borrower agrees that from and after the date hereof and until the
Termination Date:
5.1 MAINTENANCE OF EXISTENCE AND CONDUCT OF BUSINESS. Borrower shall: (1) do or
cause to be done all things necessary to preserve and keep in full force and
effect its corporate existence and its rights and franchises; (2) continue to
conduct its business substantially as now conducted or as otherwise permitted
hereunder; (3) at all times maintain, preserve and protect all of its assets and
properties used or useful in the conduct of its business, and keep the same in
good repair, working order and condition in all material respects (taking into
consideration ordinary wear and tear) and from time to time make, or cause to be
made, all necessary or appropriate repairs, replacements and improvements
thereto consistent with industry practices; and transact business only in such
corporate and trade names as are set forth in Disclosure Schedule (5.1).
5.2 PAYMENT OF OBLIGATIONS.
(1) Subject to Section 5.2(2), Borrower shall pay and discharge or cause to be
paid and discharged promptly all Charges payable by it, including (a) Charges
imposed upon it, its income and profits, or any of its property (real, personal
or mixed) and all Charges with respect to employee source deduction obligations,
and (b) lawful claims for labour, materials, supplies and services or otherwise,
before any thereof shall become past due.
(2) Borrower may in good faith contest, by appropriate proceedings, the validity
or amount of any Charges or claims described in Section 5.2(1); provided, that
(a) adequate reserves with respect to such contest are maintained on the books
of Borrower, in accordance with GAAP, (b) no Lien shall be imposed to secure
payment of such Charges that is superior to any of the Liens securing payment of
the Obligations and such contest is maintained and prosecuted continuously and
with diligence and operates to suspend collection or enforcement of such
Charges, (c) none of the Collateral becomes subject to forfeiture or loss as a
result of such contest, (d) Borrower shall promptly pay or discharge such
contested Charges or claims and all additional charges, interest, penalties and
expenses, if any, and shall deliver to Lender evidence acceptable to Lender of
such compliance, payment or discharge, if such contest is terminated or
discontinued adversely to Borrower or the conditions set forth in this Section
5.2(2) are no longer met, and (e) Lender has not advised Borrower in writing
that Lender reasonably believes that nonpayment or nondischarge thereof could
have or result in a Material Adverse Effect.
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5.3 BOOKS AND RECORDS. Borrower shall keep adequate books and records with
respect to its business activities in which proper entries, reflecting all
financial transactions, are made in accordance with GAAP and on a basis
consistent with the Financial Statements attached as Disclosure Schedule
(3.4(1)). If Borrower maintains any books and records in Quebec, Borrower shall
maintain a duplicate set of such books and records at a location in Ontario to
which Lender has been granted access.
5.4 INSURANCE; DAMAGE TO OR DESTRUCTION OF COLLATERAL.
(1) Borrower shall, at its sole cost and expense, maintain the policies of
insurance described on Disclosure Schedule (3.17) as in effect on the date
hereof or otherwise in form and amounts and with insurers acceptable to Lender.
If Borrower at any time or times hereafter shall fail to obtain or maintain any
of the policies of insurance required above or to pay all premiums relating
thereto, Lender may at any time or times thereafter obtain and maintain such
policies of insurance and pay such premiums and take any other action with
respect thereto which Lender deems advisable. Lender shall have no obligation to
obtain insurance for Borrower or pay any premiums therefor. By doing so, Lender
shall not be deemed to have waived any Default or Event of Default arising from
Borrower's failure to maintain such insurance or pay any premiums therefor. All
sums so disbursed, including legal fees, court costs and other charges related
thereto, shall be payable on demand by Borrower to Lender and shall be
additional Obligations hereunder secured by the Collateral. Borrower shall
deliver to Lender, in form and substance satisfactory to Lender, acting
reasonably, endorsements to (a) all "All Risk" and business interruption
insurance of Borrower naming Lender as loss payee, and containing the standard
mortgage clause approved by the Insurance Bureau of Canada and (b) all general
liability and other liability policies naming Lender as additional insured.
(2) Lender reserves the right at any time upon any change in Borrower's risk
profile (including any change in the product mix maintained by Borrower or any
laws affecting the potential liability of Borrower) to require additional forms
and limits of insurance to, in Lender's reasonable discretion, adequately
protect Lender's interests in all or any portion of the Collateral and to ensure
that Borrower is protected by insurance in amounts and with coverage customary
for its industry. If requested by Lender, Borrower shall deliver to Lender from
time to time a report of a reputable insurance broker, satisfactory to Lender,
with respect to its insurance policies.
(3) Borrower irrevocably makes, constitutes and appoints Lender (and all
officers, employees or agents designated by Lender), so long as any Default or
Event of Default shall have occurred and be continuing or the anticipated
insurance proceeds exceed $1,000,000, as Borrower's true and lawful agent and
attorney-in-fact for the purpose of making, settling and adjusting claims under
such "All Risk" policies of insurance, endorsing the name of Borrower on any
cheque or other item of payment for the proceeds of such "All Risk" policies of
insurance and for making all determinations and decisions with respect to such
"All Risk" policies of insurance. Lender shall have no duty to exercise any
rights or powers granted to it pursuant to the foregoing power-of-attorney.
Borrower shall promptly notify Lender of any loss, damage, or destruction to the
Collateral in the amount of $150,000 or more, whether or not covered by
insurance. After
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deducting from such proceeds the expenses, if any, incurred by Lender in the
collection or handling thereof, Lender may, at its option, apply such proceeds
to the reduction of the Obligations in accordance with Section 1.3(4), or permit
or require Borrower to use such money, or any part thereof, to replace, repair,
restore or rebuild the Collateral in a diligent and expeditious manner with
materials and workmanship of substantially the same quality as existed before
the loss, damage or destruction. Notwithstanding the foregoing, if the casualty
giving rise to such insurance proceeds would not reasonably be expected to have
a Material Adverse Effect and such insurance proceeds do not exceed $1,000,000
in the aggregate, Lender shall permit Borrower to replace, restore, repair or
rebuild the property; provided that if Borrower has not completed or entered
into binding agreements to complete such replacement, restoration, repair or
rebuilding within 180 days of such casualty, Lender may apply such insurance
proceeds to the Obligations in accordance with Section 1.3(4). All insurance
proceeds which are to be made available to Borrower to replace, repair, restore
or rebuild the Collateral shall be applied by Lender to reduce the outstanding
principal balance of the Revolving Loan (which application shall not result in a
permanent reduction of the Revolving Loan Commitment) and upon such application,
Lender shall establish a Reserve against the Borrowing Base in an amount equal
to the amount of such proceeds so applied. Thereafter, such funds shall be made
available to Borrower to provide funds to replace, repair, restore or rebuild
the Collateral as follows: (a) Borrower shall request a Revolving Credit Advance
be made to Borrower in the amount requested to be released; (b) so long as the
conditions set forth in Section 2.2 have been met, Lender shall make such
Revolving Credit Advance; and (c) in the case of insurance proceeds applied
against the Revolving Loan, the Reserve established with respect to such
insurance proceeds shall be reduced by the amount of such Revolving Credit
Advance. To the extent not used to replace, repair, restore or rebuild the
Collateral, such insurance proceeds shall be applied in accordance with Section
1.3(3).
5.5 COMPLIANCE WITH LAWS.
(1) Borrower shall comply with all federal, provincial, local and foreign laws
and regulations applicable to it, including those relating to licensing and
employment and labour matters and Environmental Laws and Environmental Permits,
except to the extent that the failure to comply, individually or in the
aggregate, could not reasonably be expected to have a Material Adverse Effect.
(2) For each existing Canadian Pension Plan, Borrower shall ensure that such
plan retains its registered status under and is administered in a timely manner
in all material respects in accordance with the applicable pension plan text,
funding agreement, the ITA and all other applicable laws.
(3) For each Canadian Pension Plan hereafter adopted by Borrower which is
required to be registered under the ITA or any other applicable laws, Borrower
shall use its best efforts to seek and receive confirmation in writing from the
applicable Governmental Authorities to the effect that such plan is
unconditionally registered under the ITA and such other applicable laws.
(4) For each existing Canadian Pension Plan and Canadian Benefit Plan hereafter
adopted,
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Borrower shall in a timely fashion perform in all material respects all
obligations (including fiduciary, funding, investment and administration
obligations) required to be performed in connection with such plan and the
funding media therefor.
(5) Borrower shall deliver to Lender if requested by Lender, promptly after the
filing thereof by Borrower with any applicable Governmental Authority, copies of
each annual and other return, report or valuation with respect to each Canadian
Pension Plan; promptly after receipt thereof, a copy of any direction, order,
notice, ruling or opinion that Borrower may receive from any applicable
Governmental Authority with respect to any Canadian Pension Plan; and
notification within 30 days of any increases having a cost to Borrower in excess
of $150,000 per annum, in the benefits of any existing Canadian Pension Plan or
Canadian Benefit Plan, or the establishment of any new Canadian Pension Plan or
Canadian Benefit Plan, or the commencement of contributions to any such plan to
which Borrower was not previously contributing.
5.6 SUPPLEMENTAL DISCLOSURE. From time to time as may be requested by Lender
(which request will not be made more frequently than once each year absent the
occurrence and continuance of a Default or an Event of Default), Borrower shall
supplement each Disclosure Schedule hereto, or any representation herein or in
any other Loan Document, with respect to any matter hereafter arising which, if
existing or occurring at the date of this Agreement, would have been required to
be set forth or described in such Disclosure Schedule or as an exception to such
representation or which is necessary to correct any information in such
Disclosure Schedule or representation which has been rendered inaccurate thereby
(and, in the case of any supplements to any Disclosure Schedule, such Disclosure
Schedule shall be appropriately marked to show the changes made therein);
provided that (1) no such supplement to any such Disclosure Schedule or
representation shall be or be deemed a waiver of any Default or Event of Default
resulting from the matters disclosed therein, except as consented to by Lender
in writing; and (2) no supplement shall be required as to representations and
warranties that relate solely to the Closing Date.
5.7 INTELLECTUAL PROPERTY. Borrower will conduct its business and affairs
without infringement of or interference with any Intellectual Property of any
other Person in any material respect.
5.8 ENVIRONMENTAL MATTERS. Borrower shall and shall cause each Person within its
control to: (1) conduct its operations and keep and maintain its Real Estate in
compliance with all Environmental Laws and Environmental Permits other than
noncompliance which could not reasonably be expected to have a Material Adverse
Effect; (2) implement any and all investigation, remediation, removal and
response actions which are appropriate or necessary to maintain the value and
marketability of the Real Estate or to otherwise comply with Environmental Laws
and Environmental Permits pertaining to the presence, generation, treatment,
storage, use, disposal, transportation or Release of any Hazardous Material on,
at, in, under, above, to, from or about any of its Real Estate; (3) notify
Lender promptly after Borrower becomes aware of any violation of Environmental
Laws or Environmental Permits or any Release on, at, in, under, above, to, from
or about any Real Estate which is reasonably likely to result in Environmental
Liabilities in excess of $50,000; and (4) promptly forward to Lender a
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copy of any order, notice, request for information or any communication or
report received by Borrower in connection with any such violation or Release or
any other matter relating to any Environmental Laws or Environmental Permits
that could reasonably be expected to result in Environmental Liabilities in
excess of $50,000, in each case whether or not any Governmental Authority has
taken or threatened any action in connection with any such violation, Release or
other matter. If Lender at any time has a reasonable basis to believe that there
may be a violation of any Environmental Laws or Environmental Permits by
Borrower or any Environmental Liability arising thereunder, or a Release of
Hazardous Materials on, at, in, under, above, to, from or about any of its Real
Estate, which, in each case, could reasonably be expected to have a Material
Adverse Effect, then Borrower shall, upon Lender's written request (a) cause the
performance of such environmental audits including subsurface sampling of soil
and groundwater, and preparation of such environmental reports, at Borrower's
expense, as Lender may from time to time reasonably request, which shall be
conducted by reputable environmental consulting firms reasonably acceptable to
Lender and shall be in form and substance acceptable to Lender, and (b) permit
Lender or its representatives to have access to all Real Estate for the purpose
of conducting such environmental audits and testing as Lender deems appropriate,
including subsurface sampling of soil and groundwater. Borrower shall reimburse
Lender for the costs of such audits and tests and the same will constitute a
part of the Obligations secured hereunder. Borrower shall retain a contractor,
reasonably acceptable to Lender, and cause such contractor to remove on or
before December 31, 1998 the underground storage tank located at its
manufacturing facility at 2121 Markham Road, Scarborough, Ontario and shall
deliver to Lender on or before May 1, 1999 a closure report, satisfactory in
form and substance to Lender, by an environmental consultant reasonably
acceptable to Lender, as to the completion of the removal of such underground
storage tank and the results of soil and groundwater tests after such removal,
which results shall evidence that the remaining property is not contaminated.
Borrower shall deliver to Lender on or before the fifteenth day after the
Closing Date copies of Borrower's applications for air emissions permits for
Borrower's Equipment installed or modified after January 1, 1988 certified by an
officer of Borrower as being true and complete copies of the applications that
Borrower has submitted to the applicable Governmental Authorities. Borrower
shall diligently pursue the obtaining of those air emissions permits.
5.9 LANDLORDS' AGREEMENTS, MORTGAGEE AGREEMENTS AND BAILEE LETTERS.
(1) Borrower shall obtain a landlord's agreement, mortgagee agreement or bailee
letter, as applicable, from the lessor of each leased property or mortgagee of
owned property or with respect to any warehouse, processor or converter facility
or other location where Collateral is located, which agreement or letter shall
contain a waiver or subordination of all Liens or claims that the landlord,
mortgagee or bailee may assert against the Collateral at that location, and
shall otherwise be satisfactory in form and substance to Lender. With respect to
such locations or warehouse space leased or owned as of the Closing Date and
thereafter, if Lender has not received a landlord or mortgagee agreement or
bailee letter as of the Closing Date (or, if later, as of the date such location
is acquired or leased), Borrower's Eligible Inventory and Eligible WIP Inventory
at that location shall, in Lender's discretion, be excluded from the Borrowing
Base or be subject to such Reserves as may be established by Lender in its
reasonable credit judgment; provided however, up to $250,000 of Borrower's
finished goods Inventory located at 1995
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Markham Road, Scarborough, Ontario (or such other location in Ontario in
complete substitution thereof following ten (10) days notice to Lender of such
proposed substitution) shall be eligible (if otherwise eligible) for inclusion
in the Borrowing Base; provided that, the Borrowing Base shall be subject to a
Reserve on account thereof equal to the aggregate amount of three (3) months'
rent and any other applicable charges for such location. After the Closing Date,
no real property or warehouse space shall be leased or acquired by Borrower and
no Inventory shall be shipped to a processor or converter under arrangements
established after the Closing Date without the prior written consent of Lender
(which consent, in Lender's discretion, may be conditioned upon the exclusion
from the Borrowing Base of Eligible Inventory and Eligible WIP Inventory at that
location or the establishment of Reserves acceptable to Lender) or, unless and
until a satisfactory landlord or mortgagee agreement or bailee letter, as
appropriate, shall first have been obtained with respect to such location.
Borrower shall timely and fully pay and perform its obligations under all leases
and other agreements with respect to each leased location or public warehouse
where any Collateral is or may be located.
(2) If the Danforth Property is not sold, or be subject to a contract for sale
under which the date of closing of the sale is satisfactory to Lender, on or
before March 31, 1999, Borrower shall deliver to Lender on or before April 30,
1999 current as-built surveys, zoning letters, certificates of occupancy and a
legal opinion (supplementing the title opinion delivered on the Closing Date)
with respect to such property, in each case, in form and substance satisfactory
to Lender, in its sole discretion.
(3) If Borrower acquires any real property after the Closing Date, Borrower
shall deliver to Lender concurrently with or immediately following such
acquisition a first ranking Mortgage covering such real property (subject to
Permitted Encumbrances), title insurance policies, a legal opinion, current
as-built surveys, zoning letters and certificates of occupancy, in each case, in
form and substance substantially similar to those that Borrower is obligated to
deliver to Lender on the Closing Date in respect of certain of Borrower's real
property owned by Borrower on such date.
5.10 FURTHER ASSURANCES. Borrower agrees that it shall, at Borrower's expense
and upon request of Lender, duly execute and deliver, or cause to be duly
executed and delivered, to Lender such further instruments and do and cause to
be done such further acts as may be necessary or proper in the reasonable
opinion of Lender to carry out more effectively the provisions and purposes of
this Agreement or any other Loan Document.
5.11 YEAR 2000 PROBLEMS. On or prior to October 1, 1998, Borrower shall complete
and deliver to Lender a Year 2000 Corrective Plan. On or prior to October 31,
1998, Borrower shall complete Year 2000 Corrective Actions. On or before
December 31, 1998, Borrower shall complete Year 2000 Implementation Testing. On
or before April 30, 1999, Borrower shall eliminate all Year 2000 Problems,
except where the failure to correct the same could not reasonably be expected to
have a Material Adverse Effect, individually or in the aggregate.
SECTION 6 -- NEGATIVE COVENANTS
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Borrower agrees that, without the prior written consent of Lender from
and after the date hereof until the Termination Date:
6.1 AMALGAMATIONS, SUBSIDIARIES, ETC. Borrower shall not directly or indirectly,
by operation of law or otherwise, (1) form or acquire any Subsidiary, or (2)
amalgamate or merge with, consolidate with, acquire all or substantially all of
the assets or capital stock of, or otherwise combine with or acquire, any
Person.
6.2 INVESTMENTS; LOANS AND ADVANCES. Except as otherwise expressly permitted by
this Section 6, Borrower shall not make or permit to exist any investment in, or
make, accrue or permit to exist loans or advances of money to, any Person,
through the direct or indirect lending of money, holding of securities or
otherwise, except that (1) Borrower may hold investments comprised of notes
payable, or stock or other securities issued by Account Debtors to Borrower
pursuant to negotiated agreements with respect to settlement of such Account
Debtor's Accounts in the ordinary course of business, so long as the aggregate
amount of such Accounts so settled by Borrower (excluding Accounts of Druxy's
Inc.) does not exceed $100,000; (2) Borrower may make intercompany loans and
advances to Sweetheart; provided that (A) Sweetheart shall have executed and
delivered to Borrower prior to each such loan or advance a demand note
(collectively, the "INTERCOMPANY NOTES") to evidence such intercompany
Indebtedness, which Intercompany Notes shall be in form and substance
satisfactory to Lender and shall have been delivered to Lender as collateral
security for the Obligations; (B) Borrower shall record all intercompany
transactions on its books and records in a manner satisfactory to Lender; (C) at
the time any such intercompany loan or advance is made by Borrower and after
giving effect thereto, Borrower shall be Solvent; (D) no Default or Event of
Default would occur and be continuing after giving effect to any such proposed
intercompany loan; (E) the aggregate amount of all intercompany Indebtedness
owing to Borrower after each intercompany loan or advance shall not exceed
$5,000,000; and (F) (i) if after giving effect to such intercompany loan or
advance, the aggregate amount of all intercompany Indebtedness owing to Borrower
is equal to or less than $2,000,000, then Borrower shall have Net Borrowing
Availability of not less than $1,000,000 after giving effect to such
intercompany loan or advance and (ii) if after giving effect to such
intercompany loan or advance, the aggregate amount of all intercompany
Indebtedness owing to Borrower is greater than $2,000,000, then Borrower shall
have one Dollar of Net Borrowing Availability in excess of $1,000,000, after
giving effect to such intercompany loan or advance, for each three Dollars
loaned or advanced; and (3) so long as no Default or Event of Default shall have
occurred and be continuing, and there is no outstanding Revolving Loan balance,
Borrower may make investments, subject to Control Letters in favour of Lender or
otherwise subject to a perfected security interest in favour of Lender, in (A)
marketable direct obligations issued or unconditionally guaranteed by Canada,
any agency thereof, the United States of America or any agency thereof maturing
within one year from the date of acquisition thereof, (B) commercial paper
maturing no more than one year from the date of creation thereof and currently
having the highest rating obtainable from either Standard & Poor's Ratings Group
or Moody's Investors Service, Inc., (C) certificates of deposit, maturing no
more than one year from the date of creation thereof, issued by commercial banks
incorporated under the laws of Canada or the United States of America, each
having combined capital, surplus and undivided profits of not less than
US$300,000,000 and having a senior unsecured rating of "A" or better by a
nationally
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recognized rating agency (an "A RATED BANK"), (D) time deposits, maturing no
more than 30 days from the date of creation thereof with A Rated Banks, and (E)
mutual funds that invest solely in one or more of the investments described in
clauses (A) through (D) above, and (F) other investments not exceeding $100,000
in the aggregate at any time outstanding.
6.3 INDEBTEDNESS; UNFUNDED PENSION AND BENEFIT PLAN OBLIGATIONS.
(1) Borrower shall not create, incur, assume or permit to exist any
Indebtedness, except (without duplication) (a) Indebtedness secured by purchase
money security interests and Capitalized Leases permitted in clause (1) of
Section 6.7, (b) the Loans and the other Obligations and (c) existing
Indebtedness described in Disclosure Schedule (6.3) and refinancings thereof or
amendments or modifications thereof which do not have the effect of increasing
the principal amount thereof or changing the amortization thereof (other than to
extend the same) and which are otherwise on terms and conditions no less
favourable to Borrower or Lender, as determined by Lender, than the terms of the
Indebtedness being refinanced, amended or modified, and (d) Indebtedness
consisting of intercompany loans and advances made by any Affiliate of Borrower
to Borrower ("INTERCOMPANY LOANS") provided that (A) Borrower shall record all
intercompany transactions on its books and records in a manner satisfactory to
Lender; (B) the obligations of Borrower under any such Indebtedness shall be
subordinated to the Obligations of Borrower hereunder pursuant to an agreement
between Lender and the lending Affiliate satisfactory in form and substance to
Lender and, if interest bearing, bear interest at reasonable rates of interest
acceptable to Lender; and (C) no Default or Event of Default would occur and be
continuing after giving effect to any such proposed intercompany loan.
(2) Borrower shall not, directly or indirectly, voluntarily purchase, redeem,
defease or prepay any principal of, premium, if any, interest or other amount
payable in respect of any Indebtedness, other than (a) the Obligations or (b)
Indebtedness secured by a Permitted Encumbrance if the asset securing such
Indebtedness has been sold or otherwise disposed of in accordance with Sections
6.8(3) or (4).
(3) Borrower shall not permit its unfunded pension fund and other employee
benefit plan obligations and liabilities to remain unfunded other than in
accordance with applicable law.
6.4 EMPLOYEE LOANS AND AFFILIATE TRANSACTIONS
(1) Except as otherwise expressly permitted in this Section 6 with respect to
Affiliates, Borrower shall not enter into or be a party to any transaction with
any of its Affiliates except in the ordinary course of and pursuant to the
reasonable requirements of Borrower's business and upon fair and reasonable
terms that are no less favourable to Borrower than would be obtained in a
comparable arm's length transaction with a Person not an Affiliate of Borrower.
In addition, prior to entering into any transaction with any of its Affiliates
(other than for the purchase and sale of goods that are in compliance with the
first sentence of this Section 6.4(1)), the terms of each such transaction must
be disclosed in advance to Lender. All such transactions existing as of the date
hereof are described on Disclosure Schedule (6.4(1)).
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(2) Borrower shall not enter into any lending or borrowing transaction with any
of its employees, except on an arm's-length basis in the ordinary course of
business consistent with past practices for travel expenses, relocation costs
and similar purposes and Stock and Stock option purchase plans up to a maximum
of $50,000 to any employee and up to a maximum of $150,000 in the aggregate at
any one time outstanding.
6.5 CAPITAL STRUCTURE AND BUSINESS. Borrower shall not (1) make any changes in
any of its business objectives, purposes or operations which could in any way
adversely affect the repayment of the Loans or any of the other Obligations or
could reasonably be expected to have or result in a Material Adverse Effect; or
(2) amend its constating documents or bylaws in a manner which would adversely
affect Lender or Borrower's duty or ability to repay the Obligations. Borrower
shall not engage in any business other than the businesses currently engaged in
by it or businesses reasonably related thereto.
6.6 GUARANTEED INDEBTEDNESS. Borrower shall not create, incur, assume or permit
to exist any Guaranteed Indebtedness except by endorsement of instruments or
items of payment for deposit to the general account of Borrower.
6.7 LIENS. Borrower shall not create, incur, assume or permit to exist any Lien
on or with respect to its Accounts or any of its other properties or assets
(whether now owned or hereafter acquired) except for (1) Permitted Encumbrances;
(2) Liens in existence on the date hereof and summarized on Disclosure Schedule
(6.7); and (3) Liens created after the date hereof by conditional sale or other
title retention agreements (including Capital Leases) or in connection with
purchase money Indebtedness with respect to Equipment and Fixtures acquired by
Borrower in the ordinary course of business, involving the incurrence of an
aggregate amount of purchase money Indebtedness and Capital Lease Obligations of
not more than $500,000 outstanding at any one time for all such Liens (provided
that such Liens attach only to the assets subject to such purchase money debt
and such Indebtedness is incurred within twenty (20) days following such
purchase and does not exceed 100% of the purchase price of the subject assets).
In addition, Borrower shall not become a party to any agreement, note, indenture
or instrument, or take any other action, which would prohibit the creation of a
Lien on any of its properties or other assets in favour of Lender as additional
collateral for the Obligations, except operating leases, Capital Leases or
Licenses which prohibit Liens upon the assets that are subject thereto.
6.8 SALE OF STOCK AND ASSETS. Borrower shall not sell, transfer, convey, assign
or otherwise dispose of any of its properties or other assets, including any of
its Accounts, other than (1) the sale of Inventory in the ordinary course of
business; (2) the sale of the Danforth Property; (3) the sale, transfer,
conveyance or other disposition by Borrower of Equipment or Fixtures that are
obsolete or no longer used or useful in Borrower's business and having a value
not exceeding $250,000 (as valued in the Equipment Appraisal dated May 11, 1998
by American Appraisal Canada, Inc.) in the aggregate in any Fiscal Year; and (4)
the sale of other Equipment and Fixtures having a value not exceeding $250,000
(as valued in the Equipment Appraisal dated May 11, 1998 by American Appraisal
Canada, Inc.) in the aggregate in any Fiscal Year. With respect to any
disposition of assets or other properties permitted pursuant to clauses (2), (3)
and (4) above, Lender agrees on reasonable prior written notice to release its
Lien on such assets or
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other properties in order to permit Borrower to effect such disposition and
shall execute and deliver to Borrower, at Borrower's expense, appropriate
financing change statements and other discharges and releases as reasonably
requested by Borrower.
6.9 FINANCIAL COVENANTS. Borrower shall not breach or fail to comply with any of
the Financial Covenants (the "FINANCIAL COVENANTS") set forth in Annex G.
6.10 HAZARDOUS MATERIALS. Borrower shall not cause or permit a Release of any
Hazardous Material on, at, in, under, above, to, from or about any of the Real
Estate where such Release would (1) violate in any respect, or form the basis
for any Environmental Liabilities under, any Environmental Laws or Environmental
Permits or (2) otherwise adversely impact the value or marketability of any of
the Real Estate or any of the Collateral, other than such violations or impacts
which could not reasonably be expected to have a Material Adverse Effect.
6.11 SALE-LEASEBACKS. Borrower shall not engage in any sale-leaseback, synthetic
lease or similar transaction involving any of its assets.
6.12 CANCELLATION OF INDEBTEDNESS. Borrower shall not cancel any claim or debt
owing to it, except for reasonable consideration negotiated on an arm's-length
basis and in the ordinary course of its business consistent with past practices.
6.13 RESTRICTED PAYMENTS. Borrower shall not make any Restricted Payment, except
(1) intercompany loans and advances by Borrower to Sweetheart to the extent
permitted by Section 6.2 above, (2) employee loans permitted under Section
6.4(2) above, (3) payments of management fees and trademark and patent fees
pursuant to that certain Memorandum of Understanding between Sweetheart and
Borrower dated June 8, 1998 and Licence Agreement between Borrower and
Sweetheart dated as of October 1, 1997 and (4) scheduled payments of interest
and principal (in accordance with Section 6.3(1)) with respect to Subordinated
Debt, provided that (a) no Default or Event of Default shall have occurred and
be continuing or would result after giving effect to each payment pursuant to
clause (3) or (4) above and (b) Borrower shall have Net Borrowing Availability
of at least $1,000,000 after giving effect to each payment pursuant to clause
(4) above.
6.14 CHANGE OF CORPORATE NAME OR LOCATION; CHANGE OF FISCAL YEAR. Borrower shall
not (1) change its corporate name, or (2) change its chief executive office
(other than to 2121 Markham Road, Scarborough, Ontario; provided that, Borrower
has given Lender prior written notice of the effective date of that change),
principal place of business, domicile (within the meaning of Quebec Civil Code),
corporate offices or warehouses or locations at which Collateral is held or
stored, or the location of its records concerning the Collateral, in any case
without at least thirty (30) days prior written notice to Lender and after
Lender's written acknowledgment that any reasonable action requested by Lender
in connection therewith, including to continue the perfection of any Liens in
favour of Lender in any Collateral, has been completed or taken, and provided
that any such new location shall be in Canada (but not Newfoundland or the
Northwest Territories unless security, legal opinions thereon, certificates of
officers and other documentation reasonably requested by Lender and, in each
case, in form and substance
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satisfactory to Lender, have been delivered to Lender). Without limiting the
foregoing, Borrower shall not change its name, identity or corporate structure
in any manner which might make any financing or continuation statement filed in
connection herewith or any other Loan Document materially misleading within the
meaning of Section 46(4) of the PPSA or any other then applicable PPSA except
upon prior written notice to Lender and after Lender's written acknowledgment
that any reasonable action requested by Lender in connection therewith,
including to continue the perfection of any Liens in favour of Lender in any
Collateral, has been completed or taken. Borrower shall not change its Fiscal
Year, except that, Borrower's 1998 Fiscal Year shall end on September 27, 1998
and, thereafter, Borrower's Fiscal Year end shall be the last Sunday of each
September.
6.15 NO SPECULATIVE TRANSACTIONS. Borrower shall not engage in any transaction
involving commodity options, futures contracts or similar transactions, except
solely to hedge against fluctuations in the prices of commodities owned or
purchased by it and the values of foreign currencies receivable or payable by it
and interest swaps, caps or collars.
6.16 LEASES. Borrower shall not enter into any operating lease for Equipment or
Real Estate, if the aggregate of all such operating lease payments payable in
any year for Borrower would exceed $500,000.
6.17 CHANGES RELATED TO SUBORDINATED DEBT. Borrower shall not change or amend
the terms of any Subordinated Debt (or any indenture or agreement in connection
therewith) if the effect of such amendment is to: (1) increase the interest rate
on such Subordinated Debt; (2) change the dates upon which payments of principal
or interest are due on such Subordinated Debt other than to extend such dates;
(3) change any default or event of default other than to delete or make less
restrictive any default provision therein, or add any covenant with respect to
such Subordinated Debt; (4) change the redemption or prepayment provisions of
such Subordinated Debt other than to extend the dates therefor or to reduce the
premiums payable in connection therewith; (5) grant any security or collateral
to secure payment of such Subordinated Debt; or (6) change or amend any other
term if such change or amendment would materially increase the obligations of
the obligor or confer additional material rights to the holder of such
Subordinated Debt in a manner adverse to Borrower or Lender.
SECTION 7 -- TERMSECTION 7 -- TERM
7.1 TERMINATION. The financing arrangements contemplated hereby shall be in
effect until the Commitment Termination Date, and the Loans and all other
Obligations shall be automatically due and payable in full on such date.
7.2 SURVIVAL OF OBLIGATIONS UPON TERMINATION OF FINANCING ARRANGEMENTS. Except
as otherwise expressly provided for in the Loan Documents, no termination or
cancellation (regardless of cause or procedure) of any financing arrangement
under this Agreement shall in any way affect or impair the obligations, duties
and liabilities of Borrower or the rights of Lender relating to any unpaid
portion of the Loans or any other Obligations, due or not due, liquidated,
contingent or unliquidated or any transaction or event occurring prior to such
termination, or any
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transaction or event, the performance of which is required after the Commitment
Termination Date. Except as otherwise expressly provided herein or in any other
Loan Document, all undertakings, agreements, covenants, warranties and
representations of or binding upon Borrower, and all rights of Lender, all as
contained in the Loan Documents, shall not terminate or expire, but rather shall
survive any such termination or cancellation and shall continue in full force
and effect until the Termination Date; provided however, that in all events the
provisions of Section 11, the payment obligations under Sections 1.15 and 1.16,
and the indemnities contained in the Loan Documents shall survive the
Termination Date.
SECTION 8 -- EVENTS OF DEFAULT: RIGHTS AND REMEDIES
8.1 EVENTS OF DEFAULT. The occurrence of any one or more of the following events
(regardless of the reason therefor) shall constitute an "EVENT OF DEFAULT"
hereunder:
(1) Borrower (a) fails to make any payment of principal of, or interest
on, or Fees owing in respect of, the Loans or any of the other
Obligations when due and payable, or (b) fails to pay or reimburse
Lender for any expense reimbursable hereunder or under any other Loan
Document within ten (10) days following Lender's demand for such
reimbursement or payment of expenses.
(2) Borrower fails or neglects to perform, keep or observe any of the
provisions of Sections 1.4, 1.5, 5.4 or 6, or any of the provisions
set forth in Annexes C or G, respectively.
(3) Borrower fails or neglects to perform, keep or observe any of the
provisions of Section 4 or any provisions set forth in Annexes E or F,
respectively, and the same shall remain unremedied for five (5) days
or more.
(4) Borrower fails or neglects to perform, keep or observe any other
provision of this Agreement or of any of the other Loan Documents
(other than any provision embodied in or covered by any other clause
of this Section 8.1) and the same shall remain unremedied for thirty
(30) days or more.
(5) A default or breach shall occur under any other agreement, document or
instrument to which Borrower is a party which is not cured within any
applicable grace period, and such default or breach (a) involves the
failure to make any payment when due in respect of any Indebtedness
(other than the Obligations) of Borrower in excess of $250,000 in the
aggregate, or (b) causes, or permits any holder of such Indebtedness
or a trustee to cause, Indebtedness or a portion thereof in excess of
$250,000 in the aggregate to become due prior to its stated maturity
or prior to its regularly scheduled dates of payment, regardless of
whether such default is waived, or such right is exercised, by such
holder or trustee.
(6) Any information contained in any Borrowing Base Certificate is untrue
or incorrect in any respect, or any representation or warranty herein
or in any Loan
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Document or in any written statement, report, financial statement or
certificate (other than a Borrowing Base Certificate) made or
delivered to Lender by Borrower is untrue or incorrect in any material
respect as of the date when made or deemed made.
(7) Assets of Borrower with a fair market value of $250,000 or more shall
be attached, seized, levied upon or subjected to execution,
garnishment, distress or any other similar process, or come within the
possession of any receiver, trustee, custodian, liquidator,
administrator, sequestrator, sheriff, bailiff or assignee for the
benefit of creditors of Borrower and such condition continues for
thirty (30) days or more.
(8) Any involuntary case or proceeding (including the filing of any notice
in respect thereof) is commenced against Borrower under any Insolvency
Law, any incorporation law or other applicable law in any jurisdiction
in respect of the:
(a) bankruptcy, liquidation, winding-up, dissolution or suspension of
general operations,
(b) composition, rescheduling, reorganization, arrangement or
readjustment of, or other relief from, or stay of proceedings to
enforce, some or all of the debts or obligations,
(c) appointment of a trustee, interim receiver, receiver, receiver
and manager, liquidator, administrator, custodian, sequestrator,
agent or other similar official for, or for all or a substantial
part of the assets, or
(d) possession, foreclosure, seizure or retention, sale or other
disposition of, or other proceedings to enforce security over,
all or a substantial part of the assets,
of Borrower and such case or proceeding shall remain undismissed or
unstayed for sixty (60) days or more or such court shall enter a
decree or order granting the relief sought in such case or proceeding;
(9) Borrower (i) commences or fails to contest in a timely and appropriate
manner or consents to the institution of proceedings referred to in
Section 8.1(8) above or to the filing of any such petition or to the
appointment of or taking possession by a custodian, receiver,
liquidator, assignee, trustee or sequestrator (or similar official) of
Borrower or of any substantial part of Borrower's assets or (ii) shall
take any corporate action in furtherance of any of the foregoing or of
any of the proceedings referred to in Section 8.1(8) above or (iii)
admits in writing its inability to pay its debts as such debts become
due or (iv) becomes insolvent;
(10) A final judgment or judgments for the payment of money in excess of
$250,000 in the aggregate at any time outstanding shall be rendered
against Borrower
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and the same shall not, within thirty (30) days after the entry
thereof, have been discharged or execution thereof stayed or bonded
pending appeal, or shall not have been discharged prior to the
expiration of any such stay.
(11) Any material provision of any Loan Document shall for any reason cease
to be valid, binding and enforceable in accordance with its terms (or
Borrower shall challenge the enforceability of any Loan Document or
shall assert in writing, or engage in any action or inaction based on
any such assertion, that any provision of any of the Loan Documents
has ceased to be or otherwise is not valid, binding and enforceable in
accordance with its terms), or any security interest (or the
applicable equivalent) created under any Loan Document shall cease to
be a valid and perfected first priority security interest or Lien
(except as otherwise permitted herein or therein) in any of the
Collateral purported to be covered thereby.
(12) Any "Change of Control" shall occur.
(13) Any event shall occur, whether or not insured or insurable, as a
result of which revenue-producing activities cease or are
substantially curtailed at any facility of Borrower generating more
than 30% of Borrower's revenues for the Fiscal Year preceding such
event and such cessation or curtailment continues for more than thirty
(30) days.
(14) Any default or breach by Borrower shall occur and be continuing under
any agreement to which Borrower is a party or any of its property is
subject, and such breach or default could reasonably be expected to
have a Material Adverse Effect.
8.2 REMEDIES.
(1) If any Event of Default shall have occurred and be continuing, or if a
Default shall have occurred and be continuing and Lender shall have determined
not to make any Revolving Credit Advances or incur any Letter of Credit
Obligations so long as that specific Default is continuing, Lender may, without
notice, suspend the Revolving Loan facility with respect to further Revolving
Credit Advances and/or the incurrence of further Letter of Credit Obligations
whereupon any further Revolving Credit Advances and Letter of Credit Obligations
shall be made or extended in Lender's sole discretion so long as such Default or
Event of Default is continuing.
(2) If any Event of Default shall have occurred and be continuing, Lender may,
without notice, (a) terminate the Revolving Loan facility with respect to
further Revolving Credit Advances or the incurrence of further Letter of Credit
Obligations; (b) declare all or any portion of the Obligations, including all or
any portion of any Loan to be forthwith due and payable, and require that the
Letter of Credit Obligations be cash collateralized as provided in Annex B, all
without presentment, demand, protest or further notice of any kind, all of which
are expressly waived by Borrower; and (c) exercise any rights and remedies
provided to Lender under the Loan Documents and/or at law or equity, including
all remedies provided under the PPSA, the
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equivalent thereof, or other laws similar thereto in other jurisdictions;
provided, however, that upon the occurrence of an Event of Default specified in
Sections 8.1(7), (8) or (9), the Revolving Loan facility shall be immediately
terminated and all of the Obligations, including the Revolving Loan, shall
become immediately due and payable without declaration, notice or demand by any
Person.
8.3 WAIVERS BY BORROWER. Except as otherwise provided for in this Agreement or
by applicable law, Borrower waives: (a) presentment, demand and protest and
notice of presentment, dishonour, notice of intent to accelerate, notice of
acceleration, protest, default, nonpayment, maturity, release, compromise,
settlement, extension or renewal of any or all commercial paper, accounts,
contract rights, documents, instruments, chattel paper and guarantees at any
time held by Lender on which Borrower may in any way be liable, and hereby
ratifies and confirms whatever Lender may do in this regard, (b) all rights to
notice and a hearing prior to Lender's taking possession or control of, or to
Lender's replevy, attachment or levy upon, the Collateral or any bond or
security which might be required by any court prior to allowing Lender to
exercise any of its remedies, and (c) the benefit of all valuation, appraisal,
marshalling and exemption laws.
SECTION 9 -- PARTICIPATIONS
9.1 PARTICIPATIONS.
(1) Borrower consents to Lender's sale of participations in (at any time or
times, subject to the proviso below in this sentence) any Commitment or of any
portion thereof or interest therein; provided that, so long as no Event of
Default has occurred that is continuing, each participation is at least
$5,000,000 and Lender makes reasonable efforts to give Borrower prior written
notice thereof. Any participation by Lender of all or any part of its
Commitments shall be made with the understanding that all amounts payable by
Borrower hereunder shall be determined as if Lender had not sold such
participation, and that the holder of any such participation shall not be
entitled to require Lender to take or omit to take any action hereunder except
actions directly affecting (a) any reduction in the principal amount of, or
interest rate or Fees payable with respect to, any Loan in which such holder
participates, (b) any extension of the scheduled amortization of the principal
amount of any Loan in which such holder participates or the final maturity date
thereof, and (c) any release of all or substantially all of the Collateral
(other than in accordance with the terms of this Agreement, the Collateral
Documents or the other Loan Documents). In the event of any such participation
by Lender, Lender's obligations under this Agreement to Borrower shall remain
unchanged, Borrower shall continue to be obligated to Lender in connection with
Lender's rights under this Agreement and Borrower shall be entitled to continue
to deal solely with Lender for all purposes of this Agreement; provided that,
solely for purposes of Sections 1.13, 1.15 and 1.16, Borrower acknowledges and
agrees that a participation shall give rise to a direct obligation of Borrower
to the participant and the participant shall be considered to be a "Lender".
Except as set forth in the preceding sentence, Borrower shall not have any
obligation or duty to any participant.
(2) Borrower shall assist Lender as reasonably required to enable Lender to
effect any such
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participation, including, if requested by Lender, the participation of
management in meetings with potential participants. Borrower shall certify the
correctness, completeness and accuracy of all descriptions of Borrower and its
affairs contained in any selling materials provided by it and all other
information provided by it and included in such materials, except that any
Projections delivered by Borrower shall only be certified by Borrower as having
been prepared by Borrower in compliance with the representations contained in
Section 3.4(2).
(3) Lender may furnish any information concerning Borrower in the possession of
Lender from time to time to participants (including prospective participants).
Lender shall obtain from participants (including prospective participants)
confidentiality covenants substantially equivalent to those contained in Section
11.8.
SECTION 10 -- SUCCESSORS AND ASSIGNS
10.1 SUCCESSORS AND ASSIGNS. This Agreement and the other Loan Documents shall
be binding on and shall inure to the benefit of Borrower, Lender and their
respective successors and assigns (including, in the case of Borrower, a
debtor-in-possession on behalf of Borrower), except as otherwise provided herein
or therein. Borrower shall not assign, transfer, hypothecate or otherwise convey
its rights, benefits, obligations or duties hereunder or under any of the other
Loan Documents without the prior express written consent of Lender. Any such
purported assignment, transfer, hypothecation or other conveyance by Borrower
without the prior express written consent of Lender shall be void. The terms and
provisions of this Agreement are for the purpose of defining the relative rights
and obligations of Borrower and Lender with respect to the transactions
contemplated hereby and no Person shall be a third party beneficiary of any of
the terms and provisions of this Agreement or any of the other Loan Documents.
SECTION 11 -- MISCELLANEOUS
11.1 COMPLETE AGREEMENT; MODIFICATION OF AGREEMENT. The Loan Documents
constitute the complete agreement between the parties with respect to the
subject matter thereof and may not be modified, altered or amended except as set
forth in Section 11.2 below. Any letter of interest, commitment letter and fee
letter between Borrower and Lender or any of their respective affiliates,
predating this Agreement and relating to a financing of substantially similar
form, purpose or effect shall be superseded by this Agreement.
11.2 AMENDMENTS AND WAIVERS.
(1) Except for actions expressly permitted to be taken by Lender, no amendment,
modification, termination or waiver of any provision of this Agreement or any of
the Notes, or any consent to any departure by Borrower therefrom, shall in any
event be effective unless the same shall be in writing and signed by Lender and
Borrower.
(2) Upon indefeasible payment in full in cash and performance of all of the
Obligations (other than indemnification Obligations under Section 1.13),
termination of the Commitments and a release of all claims against Lender, and
so long as no suits, actions proceedings, or claims are pending or threatened
against any Indemnified Person asserting any damages, losses or
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liabilities that are Indemnified Liabilities, Lender shall deliver to Borrower
financing change statements, mortgage releases and other documents necessary or
appropriate to evidence the termination of the Liens securing payment of the
Obligations.
11.3 FEES AND EXPENSES. Borrower shall reimburse Lender for all out-of-pocket
expenses incurred in connection with the preparation of the Loan Documents
(including the reasonable fees and expenses of all of its special loan counsel
and the fees and expenses of all other advisors, consultants and auditors
retained in connection with the Loan Documents and advice in connection
therewith). Borrower shall reimburse Lender for all fees, costs and expenses,
including the reasonable fees, costs and expenses of counsel or other advisors
(including environmental and management consultants and appraisers) for advice,
assistance, or other representation in connection with:
(1) the forwarding to Borrower or any other Person on behalf of Borrower
by Lender of the proceeds of the Loans;
(2) any amendment, modification or waiver of, or consent with respect to,
any of the Loan Documents or advice in connection with the
administration of the Loans made pursuant hereto or its rights
hereunder or thereunder;
(3) any litigation, contest, dispute, suit, proceeding or action (whether
instituted by Lender, Borrower or any other Person) in any way
relating to the Collateral, any of the Loan Documents or any other
agreement to be executed or delivered in connection therewith or
herewith, whether as party, witness, or otherwise, including any
litigation, contest, dispute, suit, case, proceeding or action, and
any appeal or review thereof, in connection with a case commenced by
or against Borrower or any other Person that may be obligated to
Lender by virtue of the Loan Documents; including any such litigation,
contest, dispute, suit, proceeding or action arising in connection
with any work-out or restructuring of the Loans during the pendency of
one or more Events of Default;
(4) any attempt to enforce any remedies of Lender against Borrower or any
other Person that may be obligated to Lender by virtue of any of the
Loan Documents; including any such attempt to enforce any such
remedies in the course of any work-out or restructuring of the Loans
during the pendency of one or more Events of Default;
(5) any work-out or restructuring of the Loans during the pendency of one
or more Events of Default;
(6) efforts to (a) monitor the Loans or any of the other Obligations, (b)
evaluate, observe or assess Borrower or its affairs, and (c) verify,
protect, evaluate, assess, appraise, collect, sell, liquidate or
otherwise dispose of any of the Collateral (provided that,
reimbursement in respect of field examinations by Lender shall be in
accordance with Section 1.9(4));
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including, as to each of clauses (1) through (6) above, all reasonable legal
counsels' and all other professional and service providers' fees arising from
such services, including those in connection with any appellate proceedings; and
all expenses, costs, charges and other fees incurred by such counsel and others
in any way or respect arising in connection with or relating to any of the
events or actions described in this Section 11.3 shall be payable, on demand, by
Borrower to Lender. Without limiting the generality of the foregoing, such
expenses, costs, charges and fees may include: fees, costs and expenses of
accountants, environmental advisors, appraisers, investment bankers, management
and other consultants and paralegals; court costs and expenses; photocopying and
duplication expenses; court reporter fees, costs and expenses; long distance
telephone charges; air express charges; telegram or telecopy charges;
secretarial overtime charges; and expenses for travel, lodging and food paid or
incurred in connection with the performance of such legal or other advisory
services.
11.4 NO WAIVER. Lender's failure, at any time or times, to require strict
performance by Borrower of any provision of this Agreement and any of the other
Loan Documents shall not waive, affect or diminish any right of Lender
thereafter to demand strict compliance and performance therewith. Any suspension
or waiver of an Event of Default shall not suspend, waive or affect any other
Event of Default whether the same is prior or subsequent thereto and whether the
same or of a different type. None of the undertakings, agreements, warranties,
covenants and representations of Borrower contained in this Agreement or any of
the other Loan Documents and no Default or Event of Default by Borrower shall be
deemed to have been suspended or waived by Lender, unless such waiver or
suspension is by an instrument in writing signed by an officer of or other
authorized employee of Lender and directed to Borrower specifying such
suspension or waiver.
11.5 REMEDIES. Lender's rights and remedies under this Agreement shall be
cumulative and nonexclusive of any other rights and remedies which Lender may
have under any other agreement, including the other Loan Documents, by operation
of law or otherwise. Recourse to the Collateral shall not be required.
11.6 SEVERABILITY. Wherever possible, each provision of this Agreement and the
other Loan Documents shall be interpreted in such a manner as to be effective
and valid under applicable law, but if any provision of this Agreement shall be
prohibited by or invalid under applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Agreement.
11.7 CONFLICT OF TERMS. Except as otherwise provided in this Agreement or any of
the other Loan Documents by specific reference to the applicable provisions of
this Agreement, if any provision contained in this Agreement is in conflict
with, or inconsistent with, any provision in any of the other Loan Documents,
the provision contained in this Agreement shall govern and control.
11.8 CONFIDENTIALITY. Lender agrees to use commercially reasonable efforts
(equivalent to the efforts Lender applies to maintain the confidentiality of its
own confidential information) to maintain as confidential all confidential
information provided to it by Borrower and designated
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as confidential during the term hereof for a period of one (1) year following
the Commitment Termination Date, except that Lender may disclose such
information (a) to Persons employed or engaged by Lender in evaluating,
approving, structuring or administering the Loans and the Commitments; (b) to
any bona fide participant or potential participant that has agreed to comply
with the covenant contained in this Section 11.8 (and any such bona fide
participant or potential participant may disclose such information to Persons
employed or engaged by them as described in clause (a) above); (c) as required
or requested by any Governmental Authority or reasonably believed by Lender to
be compelled by any court decree, subpoena or legal or administrative order or
process; provided that, Lender shall make reasonable efforts to notify Borrower
thereof before complying therewith; (d) as, on the advise of Lender's counsel,
required by law; (e) in connection with the exercise of any right or remedy
under the Loan Documents or in connection with any Litigation to which Lender is
a party; or (f) which ceases to be confidential through no fault of Lender.
11.9 GOVERNING LAW. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN ANY OF THE LOAN
DOCUMENTS, IN ALL RESPECTS, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND
PERFORMANCE, THE LOAN DOCUMENTS AND THE OBLIGATIONS SHALL BE GOVERNED BY, AND
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE PROVINCE OF ONTARIO
APPLICABLE TO CONTRACTS MADE AND PERFORMED IN THAT PROVINCE AND ANY LAWS
APPLICABLE THEREIN. BORROWER HEREBY CONSENTS AND AGREES THAT THE COURTS OF THE
PROVINCE OF ONTARIO SHALL HAVE NON-EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE
ANY CLAIMS OR DISPUTES BETWEEN BORROWER AND LENDER PERTAINING TO THIS AGREEMENT
OR ANY OF THE OTHER LOAN DOCUMENTS OR TO ANY MATTER ARISING OUT OF OR RELATING
TO THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS. NOTHING IN THIS AGREEMENT
SHALL BE DEEMED OR OPERATE TO PRECLUDE LENDER FROM BRINGING SUIT OR TAKING OTHER
LEGAL ACTION IN ANY OTHER JURISDICTION TO REALIZE ON THE COLLATERAL OR ANY OTHER
SECURITY FOR THE OBLIGATIONS, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER.
BORROWER EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY
ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND BORROWER HEREBY WAIVES ANY
OBJECTION WHICH BORROWER MAY HAVE BASED UPON LACK OF PERSONAL JURISDICTION,
IMPROPER VENUE OR FORUM NON CONVENIENS AND HEREBY CONSENTS TO THE GRANTING OF
SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY SUCH COURT. BORROWER
HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND OTHER PROCESS
ISSUED IN ANY SUCH ACTION OR SUIT AND AGREES THAT SERVICE OF SUCH SUMMONS,
COMPLAINTS AND OTHER PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL
ADDRESSED TO BORROWER AT THE ADDRESS SET FORTH IN ANNEX I OF THIS AGREEMENT AND
THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON THE EARLIER OF BORROWER'S
ACTUAL
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RECEIPT THEREOF OR THREE (3) DAYS AFTER DEPOSIT WITH CANADA POST, PROPER POSTAGE
PREPAID.
11.10 NOTICES. Except as otherwise provided herein, whenever it is provided
herein that any notice, demand, request, consent, approval, declaration or other
communication shall or may be given to or served upon any of the parties by any
other parties, or whenever any of the parties desires to give or serve upon any
other parties any communication with respect to this Agreement, each such
notice, demand, request, consent, approval, declaration or other communication
shall be in writing and shall be deemed to have been validly served, given or
delivered (1) upon the earlier of actual receipt and three (3) Business Days
after deposit with Canada Post, registered mail, return receipt requested, with
proper postage prepaid, (2) upon transmission, when sent by telecopy or other
similar facsimile transmission (with such telecopy or facsimile promptly
confirmed by delivery of a copy by personal delivery or Canada Post as otherwise
provided in this Section 11.10), (3) one (1) Business Day after deposit with a
reputable overnight courier with all charges prepaid or (4) when delivered, if
hand-delivered by messenger, all of which shall be addressed to the party to be
notified and sent to the address or facsimile number indicated on Annex I or to
such other address (or facsimile number) as may be substituted by notice given
as herein provided. The giving of any notice required hereunder may be waived in
writing by the party entitled to receive such notice. Failure or delay in
delivering copies of any notice, demand, request, consent, approval, declaration
or other communication to any Person (other than Borrower or Lender) designated
on Annex I to receive copies shall in no way adversely affect the effectiveness
of such notice, demand, request, consent, approval, declaration or other
communication.
11.11 SECTION TITLES. The Section titles and Table of Contents contained in this
Agreement are and shall be without substantive meaning or content of any kind
whatsoever and are not a part of the agreement between the parties hereto.
11.12 COUNTERPARTS. This Agreement may be executed in any number of separate
counterparts, each of which shall collectively and separately constitute one
agreement.
11.13 PRESS RELEASES. Borrower agrees that neither it nor its Affiliates will in
the future issue any press releases or other public disclosure using the name of
GE Capital Canada or its affiliates or referring to this Agreement or the other
Loan Documents without at least two (2) Business Days' prior notice to GE
Capital Canada and without the prior written consent of GE Capital Canada unless
(and only to the extent that) Borrower or its Affiliates is required to do so
under law and then, in any event, Borrower or such Affiliate will consult with
GE Capital Canada before issuing such press release or other public disclosure.
Borrower consents to the publication by Lender of a tombstone or similar
advertising material relating to the financing transactions contemplated by this
Agreement. Lender shall provide a draft of any such tombstone or similar
advertising material to Borrower for review and comment prior to the publication
thereof.
11.14 REINSTATEMENT. This Agreement shall remain in full force and effect and
continue to be effective should any petition be filed by or against Borrower for
liquidation or reorganization, should Borrower become insolvent or make an
assignment for the benefit of any creditor or
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creditors or should a receiver or trustee be appointed for all or any
significant part of Borrower's assets, and shall continue to be effective or to
be reinstated, as the case may be, if at any time payment and performance of the
Obligations, or any part thereof, is, pursuant to applicable law, rescinded or
reduced in amount, or must otherwise be restored or returned by any obligee of
the Obligations, whether as a "voidable preference," "fraudulent conveyance," or
otherwise, all as though such payment or performance had not been made. In the
event that any payment, or any part thereof, is rescinded, reduced, restored or
returned, the Obligations shall be reinstated and deemed reduced only by such
amount paid and not so rescinded, reduced, restored or returned.
11.15 ADVICE OF COUNSEL. Each of the parties represents to each other party
hereto that it has discussed this Agreement and, specifically, the provisions of
Section 11.9, with its counsel.
11.16 NO STRICT CONSTRUCTION. The parties hereto have participated jointly in
the negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the parties hereto and no presumption or burden of
proof shall arise favouring or disfavouring any party by virtue of the
authorship of any provisions of this Agreement.
11.17 DOLLAR REFERENCES. Unless otherwise specified, all references to dollar
amounts in this Agreement shall mean Canadian Dollars.
11.18 JUDGMENT CURRENCY.
(1) If, for the purpose of obtaining or enforcing judgment against Borrower in
any court in any jurisdiction, it becomes necessary to convert into any other
currency (such other currency being hereinafter in this Section 11.18 referred
to as the "JUDGMENT CURRENCY") an amount due under any Loan Document in any
currency (the "OBLIGATION CURRENCY") other than the Judgment Currency, the
conversion shall be made at the rate of exchange prevailing on the Business Day
immediately preceding the date of actual payment of the amount due, in the case
of any proceeding in the courts of the Province of Ontario or in the courts of
any other jurisdiction that will give effect to such conversion being made on
such date, or the date on which the judgment is given, in the case of any
proceeding in the courts of any other jurisdiction (the applicable date as of
which such conversion is made pursuant to this Section 11.18 being hereinafter
in this Section 11.18 referred to as the "JUDGMENT CONVERSION DATE").
(2) If, in the case of any proceeding in the court of any jurisdiction referred
to in Section 11.18(1), there is a change in the rate of exchange prevailing
between the Judgment Conversion Date and the date of actual receipt of the
amount due in immediately available funds, Borrower shall pay such additional
amount (if any, but in any event not a lesser amount) as may be necessary to
ensure that the amount actually received in the Judgment Currency, when
converted at the rate of exchange prevailing on the date of payment, will
produce the amount of the Obligation Currency which could have been purchased
with the amount of the Judgment Currency stipulated in the judgment or judicial
order at the rate of exchange prevailing on the Judgment Conversion Date. Any
amount due from Borrower under Section 11.18(2) shall be due as a separate debt
and shall not be affected by judgment being obtained for any other amounts
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due under or in respect of any of the Loan Documents.
(3) The term "rate of exchange" in this Section 11.18 means the rate of exchange
at which Lender would, on the relevant date at or about 12:00 noon (Toronto
time), be prepared to sell the Obligation Currency against the Judgment
Currency.
[INTENTIONALLY LEFT BLANK]
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11.19 TIME OF DAY. Unless otherwise specified, any reference to a time of day or
date means local time or date in the City of Toronto, Province of Ontario.
IN WITNESS WHEREOF, this Agreement has been duly executed as of the date first
written above.
LILY CUPS INC., as Borrower
By: /s/ Bruce Wells
---------------
Name: Bruce Wells
Title: Vice President, Finance
GENERAL ELECTRIC CAPITAL
CANADA INC.,
as Lender
By: /s/ Martin Greenberg
--------------------
Name:
Duly Authorized Signatory
<PAGE>
ANNEX A (RECITALS)
TO
CREDIT AGREEMENT
DEFINITIONS
Capitalized terms used in the Loan Documents shall have
(unless otherwise provided elsewhere in the Loan Documents) the following
respective meanings and all section references in the following definitions
shall refer to Sections of the Agreement:
(1) ACCOUNT DEBTOR shall mean any Person who may become obligated to Borrower
under, with respect to, or on account of, an Account.
(2) ACCOUNTS shall mean all "accounts," as such term is defined in the PPSA, now
owned or hereafter acquired by Borrower and, in any event, including (a) all
accounts receivable, other receivables, book debts and other forms of
obligations (other than forms of obligations evidenced by chattel paper,
securities or Instruments) now owned or hereafter received or acquired by or
belonging or owing to Borrower, whether arising out of goods sold or services
rendered by it or from any other transaction (including any such obligations
which may be characterized as an account or contract right under the PPSA), (b)
all of Borrower's rights in, to and under all purchase orders or receipts now
owned or hereafter acquired by it for goods or services, (c) all of Borrower's
rights to any goods represented by any of the foregoing (including unpaid
sellers' rights of rescission, replevin, reclamation and stoppage in transit and
rights to returned, reclaimed or repossessed goods), (d) all monies due or to
become due to Borrower, under all purchase orders and contracts for the sale of
goods or the performance of services or both by Borrower or in connection with
any other transaction (whether or not yet earned by performance on the part of
Borrower) now or hereafter in existence, including the right to receive the
proceeds of said purchase orders and contracts, and (e) all collateral security
and guarantees of any kind, now or hereafter in existence, given by any Person
with respect to any of the foregoing".
(3) AFFILIATE shall mean, with respect to any Person, (a) each Person that,
directly or indirectly, owns or controls, whether beneficially, or as a trustee,
guardian or other fiduciary, five percent (5%) or more of the Stock having
ordinary voting power in the election of directors of such Persons, (b) each
Person that controls, is controlled by or is under common control with such
Person, (c) each of such Person's officers, directors, joint venturers and
partners and (d) in the case of Borrower, the immediate family members, spouses
and lineal descendants of individuals who are Affiliates of Borrower. For the
purposes of this definition, "control" of a Person shall mean the possession,
directly or indirectly, of the power to direct or cause the direction of its
management or policies, whether through the ownership of voting securities, by
contract or otherwise; provided, however, that the term "Affiliate" shall
specifically exclude Lender.
(4) AGREEMENT shall mean the Credit Agreement between Borrower and Lender.
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(5) APPENDICES shall have the meaning assigned to it in the recitals to the
Agreement.
(6) BORROWER shall have the meaning assigned thereto in the recitals to the
Agreement.
(7) BORROWER ACCOUNTS shall have the meaning assigned to it in Annex C.
(8) BORROWING AVAILABILITY shall have the meaning assigned to it in Section
1.1(1)(a).
(9) BORROWING BASE shall mean, as of any date of determination by Lender, from
time to time, an amount equal to the sum at such time of:
(a) eighty-five percent (85%) of the book value of Borrower's Eligible
Accounts, less any Reserves established by Lender at such time;
(b) sixty percent (60%) of the book value of Borrower's Eligible Inventory
valued on a first-in, first-out basis (at the lower of cost or
market), less any Reserves established by Lender at such time; and
(c) the lesser of (i) twenty-five percent (25%) of the book value of
Borrower's Eligible WIP Inventory, and (ii) $1,000,000, less in each
case any Reserves established by Lender at such time.
For the purpose of valuing Borrower's Eligible Accounts denominated in US
Dollars, the amount of such Eligible Accounts shall be converted into the
Equivalent Amount thereof in Canadian Dollars on the last Business Day of each
Fiscal Month unless Lender has notified Borrower that, in light of recent
currency fluctuations, the conversion shall be made on a more current basis, in
which case the conversion shall be made on such basis.
(10) BORROWING BASE CERTIFICATE shall mean a certificate to be executed and
delivered from time to time by Borrower in the form attached to the Agreement as
Exhibit 4.1(2).
(11) BUSINESS DAY shall mean any day that is not a Saturday, a Sunday or a day
on which banks are required or permitted to be closed in the city of Toronto or
(for the purpose only of giving communications to Lender under Section 11.10
(other than to deliver to Lender Notices of Revolving Credit Advances)) New
York.
(12) CANADIAN BENEFIT PLANS shall mean all material employee benefit plans of
any nature or kind whatsoever that are not Canadian Pension Plans and are
maintained or contributed to by Borrower.
(13) CANADIAN DOLLARS or DOLLARS OR $ or CDN$ shall mean lawful currency of
Canada.
(14) CANADIAN PENSION PLANS shall mean each plan which is considered to be a
pension plan for the purposes of any applicable pension benefits standards
statute and/or regulation in Canada established, maintained or contributed to by
Borrower for its employees or former employees.
(15) CAPITAL EXPENDITURES shall mean, with respect to any Person, all
expenditures (by the
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expenditure of cash or the incurrence of Indebtedness) by such Person during any
measuring period for any fixed assets or improvements or for replacements,
substitutions or additions thereto, that have a useful life of more than one
year and that are required to be capitalized under GAAP.
(16) CAPITAL IMPROVEMENT PROGRAM shall mean the expansion of Borrower's
manufacturing facility at 2121 Markham Road, Scarborough, Ontario and conversion
of Borrower's cold cup manufacturing technology at that facility from wax to
double sided poly (DSP).
(17) CAPITAL LEASE shall mean, with respect to any Person, any lease of any
property (whether real, personal or mixed) by such Person as lessee that, in
accordance with GAAP, would be required to be classified and accounted for as a
capital lease on a balance sheet of such Person.
(18) CAPITAL LEASE OBLIGATION shall mean, with respect to any Capital Lease of
any Person, the amount of the obligation of the lessee thereunder that, in
accordance with GAAP, would appear on a balance sheet of such lessee in respect
of such Capital Lease.
(19) CASH MANAGEMENT SYSTEMS shall have the meaning assigned to it in Section
1.8.
(20) CHANGE OF CONTROL shall mean any event, transaction or occurrence as a
result of which (a) S.F. Holdings Group, Inc. and American Industrial Partners
Management Company, Inc. shall cease to own and control, directly or indirectly,
all of the economic and voting rights associated with ownership of at least
fifty-one percent (51%) of the outstanding capital Stock of all classes of
Sweetheart on a fully diluted basis, or (b) Sweetheart shall cease to own and
control, directly or indirectly, all of the economic and voting rights
associated with all of the outstanding capital Stock of Borrower.
(21) CHARGES shall mean all Taxes assessed, levied or imposed against Borrower
or upon (a) the Collateral, (b) the Obligations, (c) the employees, payroll,
income or gross receipts of Borrower, (d) Borrower's ownership or use of any
properties or other assets, or (e) any other aspect of Borrower's business or
existence of any Liens in respect of such Taxes.
(22) CHATTEL PAPER shall mean any "chattel paper," as such term is defined in
the PPSA, now owned or hereafter acquired by Borrower, wherever located.
(23) CLOSING DATE shall mean June 15, 1998 or such later date as Borrower and
Lender may agree in writing.
(24) CLOSING CHECKLIST shall mean the schedule, including all appendices,
exhibits or schedules thereto, listing certain documents and information to be
delivered in connection with the Agreement, the other Loan Documents and the
transactions contemplated thereunder, substantially in the form attached hereto
as Annex D.
(25) COLLATERAL shall mean the property covered by the Security Agreement, the
Hypothec, the Mortgages and the other Collateral Documents and any other
property, real or personal, tangible or intangible, now existing or hereafter
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acquired, that may at any time be or become subject to a security interest or
other Lien in favour of Lender to secure the Obligations.
(26) COLLATERAL DOCUMENTS shall mean the Security Agreement, the Hypothec, the
Mortgages and all similar agreements entered into guaranteeing payment of, or
granting a Lien upon property as security for payment of, the Obligations.
(27) COLLATERAL REPORTS shall mean the reports with respect to the Collateral
referred to in Annex F.
(28) COLLECTION ACCOUNT shall mean Lender's Canadian Dollar account 1011519 or
Lender's US Dollar account 4002739, as applicable, in the name of Lender at
Royal Bank of Canada, Main Branch, Toronto, Ontario or such other account or
accounts as Lender shall specify.
(29) COMMITMENT LETTER shall mean the letter dated May 27, 1998 from GE Capital
Canada to Borrower under which GE Capital Canada offered to Borrower a revolving
loan commitment and a term loan commitment.
(30) COMMITMENT TERMINATION DATE shall mean the earliest of (a) the third
anniversary of the Closing Date, (b) the date of termination of Lender's
obligations to make Revolving Credit Advances and/or incur Letter of Credit
Obligations or permit existing Loans to remain outstanding pursuant to Section
8.2(2), and (c) the date of indefeasible prepayment in full by Borrower of the
Loans and the cancellation and return (or stand-by guarantee) of all Letters of
Credit or the cash collateralization of all Letter of Credit Obligations
pursuant to Annex B, and the permanent reduction of the Revolving Loan
Commitment to zero dollars ($0).
(31) COMMITMENTS shall mean the aggregate of the Revolving Loan Commitment and
the Term Loan Commitment, which aggregate commitment shall be Twenty Million
Dollars ($20,000,000) on the Closing Date, as such Commitments may be reduced,
amortized or adjusted from time to time in accordance with the Agreement.
(32) COMPLIANCE CERTIFICATE shall have the meaning assigned to it in Annex E.
(33) CONTRACTS shall mean all "contracts," now owned or hereafter acquired by
Borrower, in any event, including all contracts, undertakings, or agreements
(other than rights evidenced by chattel paper, securities or Instruments) in or
under which Borrower may now or hereafter have any right, title or interest,
including any agreement relating to the terms of payment or the terms of
performance of any Account.
(34) CONTROL LETTER means a letter agreement between Lender and (i) the issuer
of uncertificated securities with respect to uncertificated securities in the
name of Borrower, (ii) a securities intermediary with respect to securities,
whether certificated or uncertificated, securities entitlements and other
financial assets held in a securities account in the name of Borrower, (iii) a
futures commission merchant or clearing house with respect to commodity accounts
and commodity contracts held by Borrower, whereby, among other things, the
issuer, securities intermediary or futures commission merchant disclaims any
security interest in the applicable financial assets, acknowledges the Lien of
Lender on such financial assets, and agrees to follow
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the instructions or entitlement orders of Lender without further consent by
Borrower.
(35) COPYRIGHT LICENCE shall mean any and all rights now owned or hereafter
acquired by Borrower under any written agreement granting any right to use any
Copyright or Copyright registration.
(36) COPYRIGHTS shall mean all of the following now owned or hereafter acquired
by Borrower: (a) all copyrights and general intangibles of like nature (whether
registered or unregistered), now owned or existing or hereafter adopted or
acquired, all registrations and recordings thereof, and all applications in
connection therewith, including all registrations, recordings and applications
in the Canadian Copyright Office or in any similar office or agency in any other
country or any political subdivision thereof, and (b) all reissues, extensions
or renewals thereof.
(37) CURRENCY EXCHANGE RATE shall mean, during any calendar month, the average
of the daily rates of exchange during the immediately preceding calendar month
that Lender uses in operating its business to convert Canadian Dollars to US
Dollars or US Dollars to Canadian Dollars, as applicable.
(38) DANFORTH PROPERTY shall mean Borrower's Real Estate municipally known as
300 Danforth Road, Scarborough, Ontario M1L 3X5.
(39) DEFAULT shall mean any event which, with the passage of time or notice or
both, would, unless cured or waived, become an Event of Default.
(40) DISBURSEMENT ACCOUNTS shall have the meaning assigned to it on Annex C.
(41) DISCLOSURE SCHEDULES shall mean the Schedules prepared by Borrower and
denominated as Disclosure Schedules 1.4 through 6.7 in the Table of Contents to
the Agreement.
(42) EBITDA shall mean, with respect to any Person for any fiscal period, an
amount equal to (a) net income of such Person for such period, minus (b) the sum
of (i) income tax credits, (ii) interest income, (iii) gain from extraordinary
items for such period in respect of the sale of the Danforth Property, and (iv)
any other non-cash gains which have been added in determining net income, in
each case to the extent included in the calculation of net income of such Person
for such period in accordance with GAAP, but without duplication, plus (c) the
sum of (i) any provision for income taxes, (ii) Interest Expense, (iii) loss
from extraordinary items for such period, (iv) the amount of non-cash charges
(including depreciation and amortization and, for greater certainty, the fees
and expenses directly attributable to this Agreement and the Loans as of and
following the Closing Date) for such period, (v) amortized debt discount for
such period, and (vi) the amount of any deduction to net income as the result of
any grant to any members of the management of such Person of any Stock, in each
case to the extent included in the calculation of net income of such Person for
such period in accordance with GAAP, but without duplication. For purposes of
this definition, the following items shall be excluded in determining net income
of a Person: (1) the income (or deficit) of any other Person accrued prior to
the date it became a Subsidiary of, or was merged or consolidated into, such
Person or any of such Person's
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Subsidiaries; (2) the income (or deficit) of any other Person (other than a
Subsidiary) in which such Person has an ownership interest, except to the extent
any such income has actually been received by such Person in the form of cash
dividends or distributions; (3) the undistributed earnings of any Subsidiary of
such Person to the extent that the declaration or payment of dividends or
similar distributions by such Subsidiary is not at the time permitted by the
terms of any contractual obligation or requirement of law applicable to such
Subsidiary; (4) any restoration to income of any contingency reserve, except to
the extent that provision for such reserve was made out of income accrued during
such period; (5) any write-up of any asset; (6) any net gain from the collection
of the proceeds of life insurance policies; (7) any net gain arising from the
acquisition of any securities, or the extinguishment, under GAAP, of any
Indebtedness, of such Person, (8) in the case of a successor to such Person by
amalgamation or as a transferee of its assets, any earnings of such successor
prior to such consolidation, merger or transfer of assets, and (9) any deferred
credit representing the excess of equity in any Subsidiary of such Person at the
date of acquisition of such Subsidiary over the cost to such Person of the
investment in such Subsidiary.
(43) ELIGIBLE ACCOUNTS shall have the meaning assigned to it in Section 1.6 of
the Agreement.
(44) ELIGIBLE INVENTORY shall have the meaning assigned to it in Section 1.7 of
the Agreement.
(45) ELIGIBLE WIP INVENTORY shall have the meaning assigned to it in Section 1.7
of the Agreement.
(46) ENVIRONMENTAL LAWS shall mean all applicable federal, provincial, local and
foreign laws, statutes, ordinances, codes, rules, standards, orders-in-council
and regulations, now or hereafter in effect, and in each case as amended or
supplemented from time to time, and any applicable judicial or administrative
interpretation thereof, including any applicable judicial or administrative
order, consent decree, order or judgment, imposing liability or standards of
conduct for or relating to the regulation and protection of human health,
safety, the environment and natural resources (including ambient air, surface
water, groundwater, wetlands, land surface or subsurface strata, wildlife,
aquatic species and vegetation).
(47) ENVIRONMENTAL LIABILITIES shall mean, with respect to any Person, all
liabilities, obligations, responsibilities, response, remedial and removal
costs, investigation and feasibility study costs, capital costs, operation and
maintenance costs, losses, damages, punitive damages, property damages, natural
resource damages, consequential damages, treble damages, costs and expenses
(including all fees, disbursements and expenses of counsel, experts and
consultants), fines, penalties, sanctions and interest incurred as a result of
or related to any claim, suit, action, administrative order, investigation,
proceeding or demand by any Person, whether based in contract, tort, implied or
express warranty, strict liability, criminal or civil statute or common law,
including any arising under or related to any Environmental Laws, Environmental
Permits, or in connection with any Release or threatened Release or presence of
a Hazardous Material whether on, at, in, under, from or about or in the vicinity
of any real or personal property.
(48) ENVIRONMENTAL PERMITS shall mean all permits, licenses, written
authorizations,
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certificates, approvals or registrations required by any Governmental Authority
under any Environmental Laws.
(49) EQUIPMENT shall mean all "equipment," as such term is defined in the PPSA,
now owned or hereafter acquired by Borrower, wherever located and, in any event,
including all Borrower's machinery and equipment, including processing
equipment, conveyors, machine tools, data processing and computer equipment with
software and peripheral equipment (other than software constituting part of the
Accounts), and all engineering, processing and manufacturing equipment, office
machinery, furniture, materials handling equipment, tools, attachments,
accessories, automotive equipment, trailers, trucks, forklifts, molds, dies,
stamps, motor vehicles, rolling stock and other equipment of every kind and
nature, trade fixtures and fixtures not forming a part of real property, all
whether now owned or hereafter acquired, and wherever situated, together with
all additions and accessions thereto, replacements therefor, all parts therefor,
all substitutes for any of the foregoing, fuel therefor, and all manuals,
drawings, instructions, warranties and rights with respect thereto, and all
products and proceeds thereof and condemnation awards and insurance proceeds
with respect thereto.
(50) EQUIVALENT AMOUNT shall mean, on any date of determination, with respect to
obligations or valuations denominated in one currency (the "FIRST CURRENCY"),
the amount of another currency (the "SECOND CURRENCY") which would result from
the conversion of the relevant amount of the first currency into the second
currency at the 12:00 noon rate quoted on the Reuters Monitor Screen (Page BOFC
or such other Page as may replace such Page for the purpose of displaying such
exchange rates) on such date or, if such date is not a Business Day, on the
Business Day immediately preceding such date of determination, or at such other
rate as may have been agreed in writing between Borrower and Lender.
(51) EVENT OF DEFAULT shall have the meaning assigned to it in Section 8.1.
(52) FEES shall mean any and all fees and field audit charges payable to Lender
pursuant to the Agreement or any of the other Loan Documents.
(53) FINANCIAL STATEMENTS shall mean the income statements, statements of cash
flows and balance sheets of Borrower delivered in accordance with Section 3.4 of
the Agreement and Annex E to the Agreement.
(54) FISCAL MONTH shall mean any of the monthly accounting periods of Borrower.
(55) FISCAL QUARTER shall mean any of the quarterly accounting periods of
Borrower in each Fiscal Year consisting of thirteen (13) consecutive weeks.
(56) FISCAL YEAR shall mean any of the annual accounting periods of Borrower
ending on the last Sunday in September of each year.
(57) FIXED CHARGES shall mean, with respect to any Person for any fiscal period,
(a) the aggregate of all Interest Expense paid or accrued during such period
plus (b) scheduled payments of principal with respect to Indebtedness during
such period (excluding all scheduled repayments
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of principal to the Prior Lender in respect of the term loan made by the Prior
Lender to Borrower).
(58) FIXED CHARGE COVERAGE RATIO shall mean, with respect to any Person for any
fiscal period, the ratio of EBITDA, less Capital Expenditures, less cash
payments of income and capital Taxes to Fixed Charges. In computing Capital
Expenditures for the purpose of this definition, Capital Expenditures shall mean
Capital Expenditures that are financed with the proceeds of Revolving Credit
Advances. In computing the Fixed Charge Coverage Ratio, Capital Expenditures
will not be deducted from EBITDA until the aggregate amount of Capital
Expenditures made on or after January 1, 1998 exceed $10,000,000. At and
following such time, each dollar of Capital Expenditures in excess of net
proceeds of capital dispositions made during any fiscal period with the proceeds
of Revolving Credit Advances shall be deducted from EBITDA for such fiscal
period in computing the Fixed Charge Coverage Ratio for such fiscal period. In
computing Fixed Charges for any fiscal period, interest and principal payments
that are due within one week after the end of that fiscal period, without
duplication, shall be deemed to have been paid on the last day of that fiscal
period.
(59) FIXTURES shall mean all "fixtures" including trace fixtures, facilities and
equipment however affixed or attached to real property or building or other
structures or real property.
(60) FUNDED DEBT shall mean, with respect to any Person, all Indebtedness for
borrowed money evidenced by notes, bonds, debentures, or similar evidences of
Indebtedness and which by its terms matures more than one year from, or is
directly or indirectly renewable or extendible at such Person's option under a
revolving credit or similar agreement obligating the lender or lenders to extend
credit over a period of more than one year from the date of creation thereof,
and specifically including Capital Lease Obligations, current maturities of
long-term debt, revolving credit and short-term debt extendible beyond one year
at the option of the debtor, and also including, in the case of Borrower, the
Obligations and, without duplication, Guaranteed Indebtedness consisting of
guarantees of Funded Debt of other Persons.
(61) GAAP shall mean generally accepted accounting principles in Canada,
consistently applied as such term is further defined in Annex G to the
Agreement.
(62) GOVERNMENTAL AUTHORITY shall mean any nation or government, any state or
other political subdivision thereof, and any agency, department or other entity
exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government.
(63) GUARANTEED INDEBTEDNESS shall mean, as to any Person, any obligation of
such Person guaranteeing any indebtedness, lease, dividend, or other obligation
("PRIMARY OBLIGATIONS") of any other Person (the "PRIMARY OBLIGOR") in any
manner, including any obligation or arrangement of such Person (a) to purchase
or repurchase any such primary obligation, (b) to advance or supply funds (A)
for the purchase or payment of any such primary obligation or (B) to maintain
working capital or equity capital of the primary obligor or otherwise to
maintain the net worth or solvency or any balance sheet condition of the primary
obligor, (c) to purchase property, securities or services primarily for the
purpose of assuring the owner of any such
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primary obligation of the ability of the primary obligor to make payment of such
primary obligation, or (d) to indemnify the owner of such primary obligation
against loss in respect thereof. The amount of any Guaranteed Indebtedness at
any time shall be deemed to be an amount equal to the lesser at such time of (x)
the stated or determinable amount of the primary obligation in respect of which
such Guaranteed Indebtedness is made and (y) the maximum amount for which such
Person may be liable pursuant to the terms of the instrument embodying such
Guaranteed Indebtedness; or, if not stated or determinable, the maximum
reasonably anticipated liability (assuming full performance) in respect thereof.
(64) HAZARDOUS MATERIAL shall mean any substance, material or waste which is
regulated by or forms the basis of liability now or hereafter under, any
applicable Environmental Laws, including any material or substance which is (a)
defined as a "solid waste," "hazardous waste," "hazardous material," "hazardous
substance," "dangerous good", "extremely hazardous waste," "restricted hazardous
waste," "pollutant," "contaminant," "hazardous constituent," "special waste,"
"toxic substance" or other similar term or phrase under any applicable
Environmental Laws, (b) petroleum or any fraction or by-product thereof,
asbestos, polychlorinated biphenyls (PCB's), or any radioactive substance.
(65) HYPOTHEC shall mean the Hypothec dated on or about the date hereof entered
into between Lender and Borrower.
(66) INDEBTEDNESS of any Person shall mean without duplication (a) all
indebtedness of such Person for borrowed money or for the deferred purchase
price of property payment for which is deferred six (6) months or more, but
excluding obligations to trade creditors incurred in the ordinary course of
business or in connection with the expansion of Borrower's facilities at
Borrower's 2121 Markham Road, Scarborough, Ontario property that are not overdue
by more than six (6) months unless being contested in good faith, (b) all
reimbursement and other obligations with respect to letters of credit, bankers'
acceptances and surety bonds, whether or not matured, (c) all obligations
evidenced by notes, bonds, debentures or similar instruments, (d) all
indebtedness created or arising under any conditional sale or other title
retention agreement with respect to property acquired by such Person (even
though the rights and remedies of the seller or lender under such agreement in
the event of default are limited to repossession or sale of such property), (e)
all Capital Lease Obligations and the present value (discounted at the Index
Rate as in effect on the Closing Date) of future rental payments under all
synthetic leases, (f) all obligations of such Person under commodity purchase or
option agreements or other commodity price hedging arrangements, in each case
whether contingent or matured, (g) all obligations of such Person under any
foreign exchange contract, currency swap agreement, interest rate swap, cap or
collar agreement or other similar agreement or arrangement designed to alter the
risks of that Person arising from fluctuations in currency values or interest
rates, in each case whether contingent or matured, (h) all Indebtedness referred
to above secured by (or for which the holder of such Indebtedness has an
existing right, contingent or otherwise, to be secured by) any Lien upon or in
property or other assets (including accounts and contract rights) owned by such
Person, even though such Person has not assumed or become liable for the payment
of such Indebtedness, and (i) the Obligations.
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(67) INDEMNIFIED LIABILITIES shall have the meaning assigned to it in Section
1.13.
(68) INDEX RATE shall mean, at any date, the rate per annum determined by Lender
by reference to the average rate quoted on the Reuters Monitor Screen (Page
CDOR, or such other Page as may replace such Page on such Screen for the purpose
of displaying Canadian interbank bid rates for Canadian dollar bankers'
acceptances) applicable to Canadian dollar bankers' acceptances with a term of
30 days as of 10:00 a.m. (Toronto time) on the Business Day immediately
preceding the Closing Date until and including the last day of the month in
which the Closing Date occurs and, thereafter, as of the last Business Day of
the then most recently ended month. If for any reason the Reuters Monitor Screen
rates are unavailable, Index Rate means the rate of interest determined by
Lender which is equal to the arithmetic mean (rounded upwards to the nearest
basis point) of the rates quoted by The Bank of Nova Scotia, Royal Bank of
Canada and Canadian Imperial Bank of Commerce in respect of Canadian Dollar
bankers' acceptances with a term of 30 days as of 10:00 a.m. (Toronto time) on
the Business Day immediately preceding the Closing Date until and including the
last day of the month in which the Closing Date occurs and, thereafter, as of
the last Business Day of the then most recently ended month. For greater
certainty, no adjustment shall be made to account for the difference between the
number of days in a year on which the rates referred to in this definition are
based and the number of days in a year on the basis of which interest is
calculated in the Agreement. Each change in any interest rate provided for in
the Agreement based upon the Index Rate shall take effect at the time of such
change in the Index Rate.
(69) INSOLVENCY LAWS shall mean any of the Bankruptcy and Insolvency Act
(Canada), the Companies' Creditors Arrangement Act (Canada), the Winding-Up and
Restructuring Act (Canada) and Title 11 of the United States Code entitled
"Bankruptcy", each as now and hereafter in effect, any successors to such
statutes and any other applicable insolvency or other similar law of any
jurisdiction including, without limitation, any law of any jurisdiction
permitting a debtor to obtain a stay or a compromise of the claims of its
creditors against it.
(70) INSTRUMENTS shall mean any "instrument," as such term is defined in the
PPSA, now owned or hereafter acquired by Borrower, wherever located, and, in any
event, including all certificated securities, all certificates of deposit, and
all notes and other, without limitation, evidences of indebtedness, other than
instruments that constitute, or are a part of a group of writings that
constitute, Chattel Paper.
(71) INTELLECTUAL PROPERTY shall mean any and all Licences, Patents, Copyrights,
Trademarks, trade secrets and customer lists.
(72) INTERCOMPANY LOANS shall have the meaning assigned to it in Section 6.3.
(73) INTERCOMPANY NOTES shall have the meaning assigned to it in Section 6.2.
(74) INTEREST EXPENSE shall mean, with respect to any Person for any fiscal
period, interest expense (whether cash or non-cash) of such Person determined in
accordance with GAAP for the relevant period ended on such date, including, in
any event, interest expense with respect to any
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Funded Debt of such Person.
(75) INTEREST PAYMENT DATE means, as to any Loan, the first Business Day of each
month to occur while such Loan is outstanding; provided, that each of (x) the
date upon which all of the Commitments have been terminated and the Loans have
been paid in full and (y) the Commitment Termination Date shall be deemed to be
an "Interest Payment Date" with respect to any interest which is then accrued
under the Agreement.
(76) INVENTORY shall mean any "inventory," as such term is defined in the PPSA,
now or hereafter owned or acquired by Borrower, wherever located, and in any
event including inventory, merchandise, goods and other personal property which
are held by or on behalf of Borrower for sale or lease or are furnished or are
to be furnished under a contract of service, or which constitute raw materials,
work in process or materials used or consumed or to be used or consumed in
Borrower's business or in the processing, production, packaging, promotion,
delivery or shipping of the same, including other supplies.
(77) ITA shall mean the Income Tax Act (Canada) as the same may, from time to
time be in effect.
(78) LENDER shall mean GE Capital Canada.
(79) LETTER OF CREDIT FEE has the meaning ascribed thereto in Annex B.
(80) LETTER OF CREDIT OBLIGATIONS shall mean all outstanding obligations
incurred by Lender at the request of Borrower, whether direct or indirect,
contingent or otherwise, due or not due, in connection with the issuance of a
reimbursement agreement or guarantee by Lender or purchase of a participation as
set forth in Annex B with respect to any Letter of Credit. The amount of such
Letter of Credit Obligations shall equal the maximum amount which may be payable
by Lender thereupon or pursuant thereto.
(81) LETTERS OF CREDIT shall mean commercial or standby letters of credit issued
for the account of Borrower by any L/C Issuer, for which Lender has incurred
Letter of Credit Obligations.
(82) LICENCE shall mean any Copyright Licence, Patent Licence, Trademark Licence
or other licence of rights or interests now held or hereafter acquired by
Borrower.
(83) LIEN shall mean any mortgage or deed of trust, pledge, hypothecation,
assignment, deposit arrangement, lien, charge, claim, security interest,
easement or encumbrance, or preference, priority or other security agreement or
preferential arrangement of any kind or nature whatsoever (including any lease
or title retention agreement, any financing lease having substantially the same
economic effect as any of the foregoing, and the filing of, or agreement to
give, any financing statement perfecting a security interest under the PPSA or
comparable law of any jurisdiction).
(84) LITIGATION shall have the meaning assigned to it in Section 3.12.
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(85) LOAN ACCOUNT shall have the meaning assigned to it in Section 1.12.
(86) LOAN DOCUMENTS shall mean the Agreement, the Notes, the Collateral
Documents and all other agreements, instruments, documents, certificates and
acknowledgment identified in the Closing Checklist executed and delivered to, or
in favour of Lender and including all other pledges, powers of attorney,
consents, assignments, contracts, notices, and all other written matter whether
heretofore, now or hereafter executed by or on behalf of Borrower, or any
Affiliate or employee of Borrower, and delivered to Lender in connection with
the Agreement or the transactions contemplated hereby. Any reference in the
Agreement or any other Loan Document to a Loan Document shall include all
appendices, exhibits or schedules thereto, and all amendments, restatements,
supplements or other modifications thereto, and shall refer to such Agreement as
the same may be in effect at any and all times such reference becomes operative.
(87) LOANS shall mean the Revolving Loan and the Term Loan.
(88) MATERIAL ADVERSE EFFECT shall mean a material adverse effect on (a) the
business, assets, operations, prospects or financial or other condition of
Borrower, (b) Borrower's ability to pay any of the Loans or any of the other
Obligations in accordance with the terms of the Agreement, (c) the Collateral or
Lender's Liens on the Collateral or the priority of such Liens, or (d) Lender's
rights and remedies under the Agreement and the other Loan Documents.
(89) MAXIMUM AMOUNT shall mean, at any particular time, an amount equal to the
Revolving Loan Commitment.
(90) MORTGAGED PROPERTIES shall have the meaning assigned to it in Annex D.
(91) MORTGAGES shall mean each of the debentures, debenture delivery agreements
and other real estate security documents delivered by Borrower to Lender with
respect to the Mortgaged Properties or real property acquired by Borrower after
the Closing Date, all in form and substance satisfactory to Lender.
(92) NET BORROWING AVAILABILITY shall mean as of any date of determination, the
lesser of (i) the Borrowing Base and (ii) the Maximum Amount, in each case, less
the sum of the Revolving Loan then outstanding.
(93) NOTES shall mean the Revolving Note and the Term Note, collectively.
(94) NOTICE OF REVOLVING CREDIT ADVANCE shall have the meaning assigned to it in
Section 1.1(1).
(95) OBLIGATIONS shall mean all loans, advances, debts, liabilities and
obligations, for the performance of covenants, tasks or duties or for payment of
monetary amounts (whether or not such performance is then required or
contingent, or such amounts are liquidated or determinable) owing by Borrower to
Lender, and all covenants and duties regarding such amounts, of any kind or
nature, present or future, whether or not evidenced by any note, agreement or
other instrument, arising under the Agreement or any of the other Loan
Documents. This term includes all
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principal, interest (including all interest which accrues after the commencement
of any case or proceeding in bankruptcy after the insolvency of, or for the
reorganization of Borrower, whether or not allowed in such proceeding), Fees,
Charges, expenses, legal fees and any other sum chargeable to Borrower under the
Agreement or any of the other Loan Documents.
(96) PATENT LICENCE shall mean rights under any written agreement now owned or
hereafter acquired by Borrower granting any right with respect to any invention
on which a Patent is in existence.
(97) PATENTS shall mean all of the following in which Borrower now holds or
hereafter acquires any interest:(a) all letters patent of invention and all
applications for letters patent, all industrial designs, design patents and all
registrations and recordings thereof, including registrations, recordings and
applications in the Canadian Patent and Trademark Office, Canadian Designs
Office or in any similar office or agency in any country or political
subdivision thereof, and (b) all reissues, continuations, continuations-in-part
or extensions thereof.
(98) PERMITTED ENCUMBRANCES shall mean the following encumbrances: (a) Liens for
taxes or assessments or other governmental Charges not yet due and payable; (b)
pledges or deposits of money securing statutory obligations under workmen's
compensation, unemployment insurance, social security or public liability laws
or similar legislation; (c) pledges or deposits of money securing bids, tenders,
contracts (other than contracts for the payment of money) or leases to which
Borrower is a party as lessee made in the ordinary course of business; (d)
inchoate and unperfected workers', mechanics' or similar liens arising in the
ordinary course of business, so long as such Liens attach only to Equipment,
Fixtures and/or Real Estate; (e) carriers', warehousemen's, suppliers' or other
similar possessory liens arising in the ordinary course of business and securing
liabilities in an outstanding aggregate amount not in excess of $50,000 at any
time, so long as such Liens attach only to Inventory; (f) deposits securing, or
in lieu of, surety, appeal or customs bonds in proceedings to which Borrower is
a party; (g) any attachment or judgment lien not constituting an Event of
Default under Section 8.1(10); (h) zoning restrictions, easements, licenses, or
other restrictions on the use of any Real Estate or other minor irregularities
in title (including leasehold title) thereto, so long as the same do not
materially impair the use, value, or marketability of such Real Estate; (i)
presently existing or hereinafter created Liens in favour of Lender; (j) Liens
expressly permitted under clauses (2) and (3) of Section 6.7 of the Agreement;
and (k) to the extent not included in clause (a), (d) or (e), Prior Claims that
are unregistered and that secure amounts that are not yet due and payable.
(99) PERSON shall mean any individual, sole proprietorship, partnership, joint
venture, trust, unincorporated organization, association, corporation, limited
liability company, institution, public benefit corporation, other entity or
government (whether federal, provincial, state, county, city, municipal, local,
foreign, or otherwise, including any instrumentality, division, agency, body or
department thereof).
(100) PPSA shall mean the Personal Property Security Act (Ontario) and the
Regulations thereunder, as from time to time in effect, provided, however, if
attachment, perfection or priority
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of Lender's security interests in any Collateral are governed by the personal
property security laws of any jurisdiction other than Ontario, PPSA shall means
those personal property security laws in such other jurisdiction for the
purposes of the provisions hereof relating to such attachment, perfection or
priority and for the definitions related to such provisions.
(101) PRIOR CLAIMS shall mean all Liens created by applicable law (in contrast
with Liens voluntarily granted) which rank or are capable of ranking prior or
pari passu with Lender's security interests (or the applicable equivalent
thereof) against all or part of the Collateral, including for amounts owing for
wages, employee deductions, goods and services taxes, sales taxes, employer
health taxes, municipal taxes, workers' compensation, pension fund obligations
and overdue rents.
(102) PRIOR LENDER shall mean The Bank of Nova Scotia.
(103) PRIOR LENDER OBLIGATIONS shall mean Indebtedness of Borrower owing to
Prior Lender.
(104) PROCEEDS shall mean "proceeds," as such term is defined in the PPSA and,
in any event, shall include (a) any and all proceeds of any insurance,
indemnity, warranty or guarantee payable to Borrower from time to time with
respect to any of the Collateral, (b) any and all payments (in any form
whatsoever) made or due and payable to Borrower from time to time in connection
with any requisition, confiscation, condemnation, seizure or forfeiture of all
or any part of the Collateral by any Governmental Authority (or any Person
acting under colour of governmental authority), (c) any claim of Borrower
against third parties (i) for past, present or future infringement of any Patent
or Patent Licence, or (ii) for past, present or future infringement or dilution
of any Copyright, Copyright Licence, Trademark or Trademark Licence, or for
injury to the goodwill associated with any Trademark or Trademark Licence, (d)
any recoveries by Borrower against third parties with respect to any litigation
or dispute concerning any of the Collateral, and (e) any and all other amounts
from time to time paid or payable under or in connection with any of the
Collateral, upon disposition or otherwise.
(105) PROJECTIONS means Borrower's forecasted consolidated and consolidating:
(a) balance sheets; (b) profit and loss statements; (c) cash flow statements;
and (d) capitalization statements, all prepared on a division by division basis,
if applicable, and otherwise consistent with the historical Financial Statements
of Borrower, together with appropriate supporting details and a statement of
underlying assumptions.
(106) REAL ESTATE shall have the meaning assigned to it in Section 3.6.
(107) REFINANCING shall mean the repayment in full by Borrower of the Prior
Lender Obligations and Indebtedness owing by Borrower to Sweetheart on the
Closing Date.
(108) RELEASE shall mean any release, threatened release, spill, emission,
leaking, pumping, pouring, emitting, emptying, escape, injection, deposit,
disposal, discharge, dispersal, dumping, leaching or migration of Hazardous
Material in the indoor or outdoor environment, including the movement of
Hazardous Material through or in the air, soil, surface water, ground water or
property; and, when used as a verb, shall have a similar meaning.
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(109) RESERVES shall mean, with respect to the Borrowing Base of Borrower (a)
reserves established by Lender from time to time against Eligible Inventory and
Eligible WIP Inventory pursuant to Section 5.9, (b) reserves established
pursuant to Section 5.4(3), and (c) such other reserves (including in respect of
Prior Claims) against Eligible Accounts, Eligible Inventory, Eligible WIP
Inventory or Borrowing Availability of Borrower which Lender may, in its
reasonable credit judgment, establish from time to time. Without limiting the
generality of the foregoing, Reserves established to ensure the payment of
accrued Interest Expenses or Indebtedness shall be deemed to be a reasonable
exercise of Lender's credit judgment.
(110) RESTRICTED PAYMENT shall mean (a) the declaration or payment of any
dividend or the incurrence of any liability to make any other payment or
distribution of cash or other property or assets in respect of a Person's Stock,
(b) any payment on account of the purchase, redemption, defeasance, sinking fund
or other retirement of a Person's Stock or any other payment or distribution
made in respect thereof, either directly or indirectly, (c) any payment or
prepayment of principal of, premium, if any, or interest, fees or other charges
on or with respect to, and any redemption, purchase, retirement, defeasance,
sinking fund or similar payment and any claim for rescission with respect to,
any Subordinated Debt; (d) any payment made to redeem, purchase, repurchase or
retire, or to obtain the surrender of, any outstanding warrants, options or
other rights to acquire Stock of such Person now or hereafter outstanding; (e)
any payment of a claim for the rescission of the purchase or sale of, or for
material damages arising from the purchase or sale of, any shares of such
Person's Stock or of a claim for reimbursement, indemnification or contribution
arising out of or related to any such claim for damages or rescission; (f) any
payment, loan, contribution, or other transfer of funds or other property to any
Stockholder of such Person other than payment of compensation in the ordinary
course to Stockholders who are employees of such Person; and (g) any payment of
management fees (or other fees of a similar nature) by such Person to any
Stockholder of such Person or their Affiliates.
(111) REVOLVING CREDIT ADVANCE shall have the meaning assigned to it in Section
1.1(1)(a).
(112) REVOLVING LOAN shall mean, at any time, the sum of (i) the aggregate
amount of Revolving Credit Advances outstanding to Borrower plus (ii) the
aggregate Letter of Credit Obligations incurred on behalf of Borrower. Unless
the context otherwise requires, references to the outstanding principal balance
of the Revolving Loan shall include the outstanding balance of Letter of Credit
Obligations.
(113) REVOLVING LOAN COMMITMENT shall mean the commitment of Lender to make
Revolving Credit Advances, which commitment shall be Ten Million Dollars
($10,000,000) on the Closing Date, as such amount may be adjusted, if at all,
from time to time in accordance with the Agreement.
(114) REVOLVING NOTE shall have the meaning assigned to it in Section 1.1(1)(b).
(115) SECURITY AGREEMENT shall mean the Security Agreement of even date herewith
entered into between Lender and Borrower.
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(116) SOLVENT shall mean, (a) with respect to any Person on a particular date
that is subject to Canadian Insolvency Law, that on such date (i) the property
of such Person is sufficient, if disposed of at a fairly conducted sale under
legal process, to enable payment of all its obligations, due and accruing due,
(ii) the property of such Person is, at a fair valuation, greater than the total
amount of liabilities, including contingent liabilities, of such Person; (iii)
such Person has not ceased paying its current obligations in the ordinary course
of business as they generally become due; and (iv) such Person is not for any
reason unable to meet its obligations as they generally become due, and, (b)
with respect to any Person on a particular date that is subject to US Insolvency
Law, that on such date (i) the fair value of the property of such Person is
greater than the total amount of liabilities, including contingent liabilities,
of such Person; (ii) the present fair saleable value of the assets of such
Person is not less than the amount that will be required to pay the probable
liability of such Person on its debts as they become absolute and matured; (iii)
such Person does not intend to, and does not believe that it will, incur debts
or liabilities beyond such Person's ability to pay as such debts and liabilities
mature; and (iv) such Person is not engaged in a business or transaction, and is
not about to engage in a business or transaction, for which such Person's
property would constitute an unreasonably small capital. The amount of
contingent liabilities (such as litigation, guarantees and pension plan
liabilities) at any time shall be computed as the amount which, in light of all
the facts and circumstances existing at the time, represents the amount which
can reasonably be expected to become an actual or matured liability.
(117) STOCK shall mean all shares, options, warrants, general or limited
partnership interests or other equivalents (regardless of how designated) of or
in a corporation, partnership or equivalent entity whether voting or nonvoting,
including common shares, preferred shares or any other "equity security".
(118) SUBORDINATED DEBT shall mean the Indebtedness of Borrower under the
Intercompany Loans that is subordinated to the Obligations in a manner and form
satisfactory to Lender in its sole discretion, as to right and time of payment
and as to any other rights and remedies thereunder.
(119) SUBSIDIARY shall mean, with respect to any Person, (a) any corporation of
which an aggregate of more than fifty percent (50%) of the outstanding Stock
having ordinary voting power to elect a majority of the board of directors of
such corporation (irrespective of whether, at the time, Stock of any other class
or classes of such corporation shall have or might have voting power by reason
of the happening of any contingency) is at the time, directly or indirectly,
owned legally or beneficially by such Person and/or one or more Subsidiaries of
such Person, or with respect to which any such Person has the right to vote or
designate the vote of fifty percent (50%) or more of such Stock whether by
proxy, agreement, operation of law or otherwise, and (b) any partnership or
limited liability company in which such Person and/or one or more Subsidiaries
of such Person shall have an interest (whether in the form of voting or
participation in profits or capital contribution) of more than fifty percent
(50%) or of which any such Person is a general partner or may exercise the
powers of a general partner.
(120) SWEETHEART means Sweetheart Cup Company Inc., a Delaware corporation,
which
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indirectly owns all of the issued and outstanding capital Stock of Borrower.
(121) TAX and TAXES includes all present and future taxes, surtaxes, duties,
levies, imposts, rates, fees, assessments, withholdings and other charges of any
nature (including income, corporate, capital (including large corporations), net
worth, sales, consumption, use, transfer, goods and services, value-added,
stamp, registration, franchise, withholding, payroll, employment, health,
education, employment insurance, pension, excise, business, school, property,
occupation, customs, anti-dumping and countervail taxes, surtaxes, duties,
levies, imposts, rates, fees, assessments, withholdings and other charges)
imposed by any Governmental Authority, together with any fines, interest,
penalties or other additions on, to, in lieu of, for non-collection of or in
respect of those taxes, surtaxes, duties, levies, imposts, rates, fees,
assessments, withholdings and other charges.
(122) TERM LOAN shall have the meaning assigned to it in Section 1.1(2)(a).
(123) TERM LOAN COMMITMENT shall mean the commitment of Lender to make the Term
Loan, which commitment shall be Ten Million Dollars ($10,000,000) on the Closing
Date, as such Term Loan Commitment may be reduced, amortized or adjusted from
time to time in accordance with the Agreement.
(124) TERM NOTE shall have the meaning assigned to it in Section 1.1(2)(a).
(125) TERMINATION DATE shall mean the date on which the Loans have been
indefeasibly repaid in full and all other Obligations under the Agreement and
the other Loan Documents have been completely discharged and Letter of Credit
Obligations have been cash collateralized, cancelled or backed by stand-by
letters of credit in accordance with Annex B, and Borrower shall not have any
further right to borrow any monies under the Agreement.
(126) THIRD PARTY INTERACTIVES shall mean all Persons with whom Borrower
exchanges data electronically in the ordinary course of business, including,
without limitation, customers, suppliers, third-party vendors, subcontractors,
processors-converters, shippers and warehousemen.
(127) TRADEMARK LICENCE shall mean rights under any written agreement now owned
or hereafter acquired by Borrower granting any right to use any Trademark.
(128) TRADEMARKS shall mean all of the following now owned or hereafter acquired
by any Borrower: (a) all trademarks, trade names, corporate names, business
names, trade styles, service marks, logos, other source or business identifiers,
prints and labels on which any of the foregoing have appeared or appear, designs
and general intangibles of like nature (whether registered or unregistered), all
registrations and recordings thereof, and all applications in connection
therewith, including registrations, recordings and applications in the Canadian
Trade-marks Office or in any similar office in any country or any political
subdivision thereof; (b) all reissues, extensions or renewals thereof; and (c)
all goodwill associated with or symbolized by any of the foregoing.
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(129) TRANSACTION EXPENSES shall have the meaning given to it in the Commitment
Letter.
(130) US DOLLARS and US$ shall mean lawful currency of the United States of
America.
(131) YEAR 2000 ASSESSMENT shall mean a comprehensive written assessment of the
nature and extent of Borrower's Year 2000 Problems and Year 2000 Date-Sensitive
Systems/Components, including, without limitation, Year 2000 Problems regarding
data exchanges with Third Party Interactives.
(132) YEAR 2000 CORRECTIVE ACTIONS shall mean, all actions necessary to
eliminate Borrower's Year 2000 Problems, including, without limitation, computer
code enhancements and revisions, upgrades and replacements of Year 2000
Date-Sensitive Systems/Components, and coordination of such enhancements,
revisions, upgrades and replacements with Third Party Interactives.
(133) YEAR 2000 CORRECTIVE PLAN shall mean, a comprehensive plan to eliminate
all of Borrower's Year 2000 Problems on or before April 30, 1999.
(134) YEAR 2000 DATE-SENSITIVE SYSTEM/COMPONENT shall mean, as to any Person,
any system software, network software, applications software, data base,
computer file, embedded microchip, firmware or hardware that accepts, creates,
manipulates, sorts, sequences, calculates, compares or outputs calendar-related
data accurately; such systems and components shall include, without limitation,
mainframe computers, file server/client systems, computer workstations, routers,
hubs, other net-work related hardware, and other computer-related software,
firmware or hardware and information processing and delivery systems of any kind
and telecommunications systems and other communication processors, security
systems, alarms, elevators and HVAC systems.
(135) YEAR 2000 IMPLEMENTATION TESTING shall mean(a) the performance of test and
validation procedures regarding Year 2000 Corrective Actions on a unit basis and
on a systemwide basis, (b) the performance of test and validation procedures
regarding data exchanges among Borrower's Year 2000 Date-Sensitive
Systems/Components and data exchanges with Third Party Interactives, and (c) the
design and implementation of additional Corrective Actions, the need for which
has been demonstrated by test and validation procedures.
(136) YEAR 2000 PROBLEMS shall mean limitations on the capacity or readiness of
Borrower's Year 2000 Date-Sensitive Systems/Components to accurately accept,
create, manipulate, sort, sequence, calculate, compare or output calendar date
information with respect to calendar year 1999 or any subsequent calendar year
beginning on or after January 1, 2000 (including leap year computations),
including, without limitation, exchanges of information among Year 2000
Date-Sensitive Systems/Components of Borrower and exchanges of information among
Borrower and Year 2000 Date-Sensitive Systems/Components of Third Party
Interactives and functionality of peripheral interfaces, firmware and embedded
microchips.
Unless otherwise specified, references in the Agreement or any
of the Appendices to a Section, subsection or clause refer to such Section,
subsection or clause as contained in the Agreement. The words "herein," "hereof"
and "hereunder" and other words of similar import
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refer to the Agreement as a whole, including all Annexes, Exhibits and
Schedules, as the same may from time to time be amended, restated, modified or
supplemented, and not to any particular section, subsection or clause contained
in the Agreement or any such Annex, Exhibit or Schedule.
Wherever from the context it appears appropriate, each term
stated in either the singular or plural shall include the singular and the
plural, and pronouns stated in the masculine, feminine or neuter gender shall
include the masculine, feminine and neuter genders. The words "including",
"includes" and "include" shall be deemed to be followed by the words "without
limitation"; references to Persons include their respective successors and
assigns (to the extent and only to the extent permitted by the Loan Documents)
or, in the case of governmental Persons, Persons succeeding to the relevant
functions of such Persons; and all references to statutes and related
regulations shall include any amendments of the same and any successor statutes
and regulations. Whenever any provision in any Loan Document refers to the
knowledge (or an analogous phrase) of Borrower, such words are intended to
signify that Borrower has actual knowledge or awareness of a particular fact or
circumstance or that Borrower, if it had exercised reasonable diligence, would
have known or been aware of such fact or circumstance.
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ANNEX B (SECTION 1.2)
TO
CREDIT AGREEMENT
LETTERS OF CREDIT
(1) ISSUANCE. Subject to the terms and conditions of the Agreement, Lender
agrees to incur, from time to time prior to the Commitment Termination Date,
upon the request of Borrower and for Borrower's account, Letter of Credit
Obligations by causing Letters of Credit to be issued (by a bank or other
legally authorized Person selected by or acceptable to Lender in its sole
discretion (each, an "L/C ISSUER")) for Borrower's account in Dollars and
guaranteed by Lender; provided, however, that the aggregate amount of all such
Letter of Credit Obligations shall not at any time exceed the least of (i) One
Million Dollars ($1,000,000) (the "L/C SUBLIMIT"), and (ii) the Maximum Amount
less the aggregate outstanding principal balance of the Revolving Credit
Advances and (iii) the Borrowing Base less the sum of (a) the aggregate
outstanding principal balance of the Revolving Credit Advances and (b) $500,000.
No such Letter of Credit shall have an expiry date which is more than one year
following the date of issuance thereof, and Lender shall not be under any
obligation to incur Letter of Credit Obligations in respect of, or purchase risk
participations in, any Letter of Credit having an expiry date which is later
than the Commitment Termination Date.
(2) REVOLVING CREDIT ADVANCES AUTOMATIC. In the event that Lender shall make any
payment on or pursuant to any Letter of Credit Obligation, such payment shall
then be deemed automatically to constitute a Revolving Credit Advance regardless
of whether a Default or an Event of Default shall have occurred and be
continuing and notwithstanding Borrower's failure to satisfy the conditions
precedent set forth in Section 2.
(3) CASH COLLATERAL. If Borrower is required to provide cash collateral for any
Letter of Credit Obligations pursuant to the Agreement prior to the Commitment
Termination Date, Borrower will pay to Lender cash or cash equivalents
acceptable to Lender ("CASH EQUIVALENTS") in an amount equal to 105% of the
maximum amount then available to be drawn under each applicable Letter of Credit
outstanding. Such funds or Cash Equivalents shall be held by Lender in an
interest bearing cash collateral account (the "CASH COLLATERAL ACCOUNT")
maintained at a bank or financial institution acceptable to Lender. The Cash
Collateral Account shall be in the name of Borrower and shall be pledged to, and
subject to the control of Lender in a manner satisfactory to Lender. Borrower
hereby pledges and grants to Lender a security interest in all such funds and
Cash Equivalents held in the Cash Collateral Account from time to time and all
proceeds thereof, as security for the payment of all amounts due in respect of
the Letter of Credit Obligations and other Obligations, whether or not then due.
The Agreement, including this Annex B, shall constitute a security agreement
under applicable law.
If any Letter of Credit Obligations, whether or not then due
and payable, shall for any reason be outstanding on the Commitment Termination
Date, Borrower shall either (i) provide cash collateral therefor in the manner
described above, or (ii) cause all such Letters of
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Credit and guarantees thereof to be cancelled and returned, or (iii) deliver a
stand-by letter (or letters) of credit in guarantee of such Letter of Credit
Obligations, which stand-by letter (or letters) of credit shall be of like tenor
and duration (plus thirty (30) additional days) as, and in an amount equal to
105% of the aggregate maximum amount then available to be drawn under, the
Letters of Credit to which such outstanding Letter of Credit Obligations relate
and shall be issued by a Person, and shall be subject to such terms and
conditions, as are be satisfactory to Lender in its sole discretion.
From time to time after funds are deposited in the Cash
Collateral Account by Borrower, whether before or after the Commitment
Termination Date, Lender may apply such funds or Cash Equivalents then held in
the Cash Collateral Account to the payment of any amounts, in such order as
Lender may elect, as shall be or shall become due and payable by Borrower to
Lender with respect to such Letter of Credit Obligations of Borrower and, upon
the satisfaction in full of all Letter of Credit Obligations of Borrower, to any
other Obligations then due and payable.
Neither Borrower nor any Person claiming on behalf of or
through Borrower shall have any right to withdraw any of the funds or Cash
Equivalents held in the Cash Collateral Account, except that upon the
termination of all Letter of Credit Obligations and the payment of all amounts
payable by Borrower to Lender in respect thereof, any funds remaining in the
Cash Collateral Account shall be applied to other Obligations when due and owing
and upon payment in full of such Obligations, any remaining amount shall be paid
to Borrower or as otherwise required by law.
(4) FEES AND EXPENSES. Borrower agrees to pay to Lender as compensation to
Lender for Letter of Credit Obligations incurred hereunder, (x) all costs and
expenses incurred by Lender on account of such Letter of Credit Obligations
(provided that such costs and expenses are reasonable so long as an Event of
Default has not occurred that is continuing), and (y) for each month during
which any Letter of Credit Obligation shall remain outstanding, a fee (the
"LETTER OF CREDIT FEE") in an amount equal to Two (2%) per annum multiplied by
the maximum amount available from time to time to be drawn under the applicable
Letter of Credit. Such fee shall be paid to Lender in arrears, on the first day
of each month and shall be calculated on the basis of the actual number of days
elapsed in the previous month on which the Letter of Credit Obligations were
outstanding and a year of 365 days. In addition, Borrower shall pay to any L/C
Issuer, on demand, such fees (including all per annum fees), charges and
expenses of such L/C Issuer in respect of the issuance, negotiation, acceptance,
amendment, transfer and payment of such Letter of Credit or otherwise payable
pursuant to the application and related documentation under which such Letter of
Credit is issued.
(5) REQUEST FOR INCURRENCE OF LETTER OF CREDIT OBLIGATIONS. Borrower shall give
Lender at least two (2) Business Days prior written notice requesting the
incurrence of any Letter of Credit Obligation, specifying the date such Letter
of Credit Obligation is to be incurred, identifying the beneficiary to which
such Letter of Credit Obligation relates and describing the nature of the
transactions proposed to be supported thereby. The notice shall be accompanied
by the form of
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<PAGE>
the Letter of Credit (which shall be acceptable to the L/C Issuer) to be
guaranteed and, to the extent not previously delivered to Lender, copies of all
agreements between Borrower and the L/C Issuer pertaining to the issuance of
Letters of Credit. Notwithstanding anything contained herein to the contrary,
Letter of Credit applications by Borrower and approvals by Lender and the L/C
Issuer may be made and transmitted pursuant to electronic codes and security
measures mutually agreed upon and established by and among Borrower, Lender and
the L/C Issuer.
(6) OBLIGATION ABSOLUTE. The obligation of Borrower to reimburse Lender for
payments made with respect to any Letter of Credit Obligation shall be absolute,
unconditional and irrevocable, without necessity of presentment, demand, protest
or other formalities. Such obligations of Borrower shall be paid strictly in
accordance with the terms hereof under all circumstances including the following
circumstances:
(a) any lack of validity or enforceability of any Letter of Credit or the
Agreement or the other Loan Documents or any other agreement;
(b) the existence of any claim, set-off, defence or other right which
Borrower or any of its Affiliates may at any time have against a
beneficiary or any transferee of any Letter of Credit (or any Persons
or entities for whom any such transferee may be acting), Lender, or
any other Person, whether in connection with the Agreement, the Letter
of Credit, the transactions contemplated herein or therein or any
unrelated transaction (including any underlying transaction between
Borrower or any of its Affiliates and the beneficiary for which the
Letter of Credit was procured);
(c) any draft, demand, certificate or any other document presented under
any Letter of Credit proving to be forged, fraudulent, invalid or
insufficient in any respect or any statement therein being untrue or
inaccurate in any respect;
(d) payment by Lender (except as otherwise expressly provided in paragraph
7(b)(C) below) or any L/C Issuer under any Letter of Credit or
guarantee thereof against presentation of a demand, draft or
certificate or other document which does not comply with the terms of
such Letter of Credit or such guarantee;
(e) any other circumstance or happening whatsoever, which is similar to
any of the foregoing; or
(f) the fact that a Default or an Event of Default shall have occurred and
be continuing.
(7) INDEMNIFICATION; NATURE OF LENDER'S DUTIES.
(a) In addition to amounts payable as elsewhere provided in the Agreement,
Borrower hereby agrees to pay and to protect, indemnify, and save
harmless Lender from
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<PAGE>
and against any and all claims, demands, liabilities, damages, losses,
costs, charges and expenses (including reasonable legal fees and all
allocated costs of internal counsel) which Lender may incur or be
subject to as a consequence, direct or indirect, of (A) the issuance
of any Letter of Credit or guarantee thereof, or (B) the failure of
Lender seeking indemnification or of any L/C Issuer to honour a demand
for payment under any Letter of Credit or guarantee thereof as a
result of any act or omission, whether rightful or wrongful, of any
present or future de jure or de facto government or Governmental
Authority, in each case other than to the extent solely as a result of
the gross negligence or willful misconduct of Lender (as finally
determined by a court of competent jurisdiction).
(b) As between Lender and Borrower, Borrower assumes all risks of the acts
and omissions of, or misuse of any Letter of Credit by beneficiaries
of any Letter of Credit. In furtherance and not in limitation of the
foregoing, to the fullest extent permitted by law, Lender shall not be
responsible: (A) for the form, validity, sufficiency, accuracy,
genuineness or legal effect of any document issued by any party in
connection with the application for and issuance of any Letter of
Credit, even if it should in fact prove to be in any or all respects
invalid, insufficient, inaccurate, fraudulent or forged; (B) for the
validity or sufficiency of any instrument transferring or assigning or
purporting to transfer or assign any Letter of Credit or the rights or
benefits thereunder or proceeds thereof, in whole or in part, which
may prove to be invalid or ineffective for any reason; (C) for failure
of the beneficiary of any Letter of Credit to comply fully with
conditions required in order to demand payment under such Letter of
Credit; provided that, in the case of any payment by Lender under any
Letter of Credit or guarantee thereof, Lender shall be liable to the
extent such payment was made solely as a result of its gross
negligence or willful misconduct (as finally determined by a court of
competent jurisdiction) in determining that the demand for payment
under such Letter of Credit or guarantee thereof complies on its face
with any applicable requirements for a demand for payment under such
Letter of Credit or guarantee thereof; (D) for errors, omissions,
interruptions or delays in transmission or delivery of any messages,
by mail, cable, telegraph, telex or otherwise, whether or not they be
in cipher; (E) for errors in interpretation of technical terms; (F)
for any loss or delay in the transmission or otherwise of any document
required in order to make a payment under any Letter of Credit or
guarantee thereof or of the proceeds thereof; (G) for the credit of
the proceeds of any drawing under any Letter of Credit or guarantee
thereof; and (H) for any consequences arising from causes beyond the
control of Lender. None of the above shall affect, impair, or prevent
the vesting of any of Lender's rights or powers hereunder or under the
Agreement.
(c) Nothing contained herein shall be deemed to limit or to expand any
waivers, covenants or indemnities made by Borrower in favour of any
L/C Issuer in any letter of credit application, reimbursement
agreement or similar document, instrument or agreement between
Borrower and such L/C Issuer.
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<PAGE>
ANNEX C (SECTION 1.8)
TO
CREDIT AGREEMENT
CASH MANAGEMENT SYSTEMS
Borrower shall establish and maintain the Cash Management
Systems described below:
(1) On or before the Closing Date (or such later date as Lender shall
consent to in writing), Borrower shall have established one or more
depository accounts in its name ("BORROWER Accounts") and Disbursement
Accounts at the bank named on Disclosure Schedule 3.19 (a
"RELATIONSHIP BANK") and that Relationship Bank, shall have entered
into a tri-party blocked accounts agreement with Lender and Borrower,
in form and substance acceptable to Lender, which shall become
operative on or prior to the Closing Date. Such blocked accounts
agreement shall provide, among other things, that (i) all items of
payment deposited in Borrower Accounts are held by such bank as agent
for Lender, (ii) the Relationship Bank executing such agreement has no
rights of setoff or recoupment or any other claim against such
account, as the case may be, other than for payment of its service
fees and other charges directly related to the administration of such
accounts and the Disbursement Accounts monitored by such bank, for the
amount of any required adjustments due to clerical error or
calculation errors directly relating to such accounts or the
Disbursement Accounts, for returned cheques or other items of payment
and in accordance with any court order, nature of garnishment binding
on such bank or any other applicable law binding on such bank, and
(iii) from and after the Closing Date (A) such bank agrees to forward
in accordance with such blocked accounts agreement all amounts in each
Borrower Account to the applicable Collection Account through daily
sweeps from such Borrower Accounts into the Collection Accounts.
Borrower shall not accumulate or maintain cash in disbursement
accounts (including payroll accounts) as of any date of determination
in excess of the aggregate of $50,000 (or the Equivalent Amount) and
the amount of cheques outstanding against such accounts as of that
date and amounts necessary to meet minimum balance requirements.
(2) So long as no Default or Event of Default has occurred and is
continuing, Borrower may amend Disclosure Schedule (3.18) to add or
replace a Relationship Bank or Borrower Account or to replace any
Disbursement Account; provided, however, that (i) Lender shall have
consented in writing in advance to the opening of such account with
the relevant bank and (ii) prior to the time of the opening of such
account, Borrower and such bank shall have executed and delivered to
Lender a tri-party blocked account agreement, in form and substance
satisfactory to Lender. Borrower shall close any of its accounts (and
establish replacement
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<PAGE>
accounts in accordance with the foregoing sentence) promptly and in
any event within thirty (30) days of notice from Lender that the
creditworthiness of any bank holding an account is no longer
acceptable in Lender's reasonable judgment, or as promptly as
practicable and in any event within sixty (60) days of notice from
Lender that the operating performance, funds transfer and/or
availability procedures or performance with respect to accounts of the
bank holding such accounts or Lender's liability under any tri-party
blocked account agreement with such bank is no longer acceptable in
Lender's reasonable judgment.
(3) The Borrower Accounts and Disbursement Accounts shall be cash
collateral accounts, with all cash, cheques and other similar items of
payment in such accounts securing payment of the Loans and all other
Obligations, and in which Borrower shall have granted a Lien to Lender
pursuant to the Security Agreement.
(4) All amounts deposited in a Collection Account shall be deemed received
by Lender in accordance with Section 1.10 of the Agreement and shall
be applied (and allocated) by Lender in accordance with Section 1.11
of the Agreement. In no event shall any amount be so applied unless
and until such amount shall have been credited for value to the
Collection Account. Borrower hereby irrevocably instructs Lender to
convert on each Business Day, at the then applicable Currency Exchange
Rate, all US Dollars in the US Dollar Collection Account (other than
the amount of any Obligation denominated in US Dollars which is then
due and payable and which would then be applied to such Obligation in
accordance with Section 1.11 of the Agreement) to Canadian Dollars for
application (and allocation) by Lender in accordance with Section 1.11
of the Agreement. Lender shall notify Borrower of the Currency
Exchange Rate on or prior to the first Business Day of each calendar
month that shall be applicable during such calendar month for the
purpose of such currency conversions. If Lender receives value before
2:00 p.m. (Toronto time) on any day for US Dollars received from
Borrower and deposited in Lender's US Dollar Collection Account that
are to be converted by Lender into Canadian Dollars for application
against Obligations denominated in Canadian Dollars, Lender shall have
received value before 2:00 p.m. on such day in "the applicable
Collection Account" for the purpose of Section 1.10 of the Agreement.
(5) Borrower may maintain, in its name, an account (each a "DISBURSEMENT
ACCOUNT" and, collectively, the "DISBURSEMENT ACCOUNTS") at a bank
acceptable to Lender into which Lender shall, from time to time,
deposit proceeds of Revolving Credit Advances made to Borrower
pursuant to Section 1.1 for use by Borrower solely in accordance with
the provisions of Section 1.4.
(6) Borrower shall and shall cause its Affiliates, officers, employees,
agents, directors or other Persons acting for or in concert with
Borrower (each a "RELATED PERSON") to (i) hold in trust for Lender all
cheques, cash and other items of payment
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<PAGE>
received by Borrower or received by any such Related Person for or on
behalf of Borrower, and (ii) within one (1) Business Day after receipt
by Borrower or any such Related Person of any cheques, cash or other
items of payment in which Borrower has an interest, deposit the same
into a Borrower Account. Borrower and each Related Person thereof
acknowledge and agree that all cash, cheques or items of payment
constituting proceeds of Collateral are the property of Lender. All
proceeds of the sale or other disposition of any Collateral shall be
deposited directly into Borrower Accounts.
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<PAGE>
ANNEX D (SECTION 2.1(1))
TO
CREDIT AGREEMENT
SCHEDULE OF ADDITIONAL CLOSING DOCUMENTS
In addition to, and not in limitation of, the conditions described in Section
2.1 of the Agreement, pursuant to Section 2.1(1), the following items must be
received by Lender in form and substance satisfactory to Lender on or prior to
the Closing Date (each capitalized term used but not otherwise defined herein
shall have the meaning ascribed thereto in Annex A to the Agreement):
(1) APPENDICES. All Appendices to the Agreement, in form and substance
satisfactory to Lender.
(2) REVOLVING NOTE AND TERM NOTE. Duly executed originals of the Revolving Note
and Term Note, each dated the Closing Date.
(3) SECURITY AGREEMENT. Duly executed originals of the Security Agreement, dated
the Closing Date, and all instruments, documents and agreements executed
pursuant thereto, including the Power of Attorney, and originals of Suppliers'
Waivers and Assignments duly executed by all Affiliates of Borrower which supply
Borrower with Goods.
(4) HYPOTHEC. Duly executed originals of the Hypothec, dated the Closing Date,
and all instruments, documents and agreements executed pursuant thereto.
(5) INSURANCE. Satisfactory evidence that the insurance policies required by
Section 5.4 are in full force and effect, together with appropriate evidence
showing loss payable and/or additional insured and mortgage clauses or
endorsements, as requested by Lender, in favour of Lender.
(6) SECURITY INTEREST AND PPSA FILINGS.
(a) Evidence satisfactory to Lender that Lender has a valid and perfected
first priority security interest (or the applicable equivalent
thereto) in the Collateral, including (i) such documents duly executed
by Borrower (including financing statements under the PPSA, as
required, and other applicable documents under the laws of any
jurisdiction with respect to the perfection of Liens) as Lender may
request in order to perfect its security interests (or the applicable
equivalent thereto) in the Collateral and (ii) copies of search
reports listing all effective financing statements (or the applicable
equivalent thereto) that name Borrower as debtor, together with copies
of such financing statements (or the applicable equivalent thereto),
none of which shall cover the Collateral, except for those relating to
the Prior Lender Obligations (all of which shall be released,
discharged or terminated
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<PAGE>
on the Closing Date) and those relating to Permitted Encumbrances.
(b) Evidence satisfactory to Lender, including copies of all financing
statements (or the applicable equivalent thereto) filed in favour of
Borrower with respect to each location, if any, at which Inventory may
be consigned.
(7) PAYOFF LETTER; FINANCING CHANGE STATEMENTS. Copies of a duly executed payoff
letter, in form and substance satisfactory to Lender, between all parties to the
Prior Lender (or their duly authorized agents) loan documents evidencing
repayment in full of all Prior Lender Obligations, together with (a) financing
change statements (or the applicable equivalent thereof) discharges, releases or
other appropriate termination statements, in form and substance satisfactory to
Lender, manually signed by the Prior Lender or its applicable agents, if
appropriate, releasing all liens of Prior Lender upon any of the personal and
real property of Borrower, and (b) termination of all blocked account
agreements, bank agency agreements or other similar agreements or arrangements
or arrangements in favour of Prior Lender or relating to the Prior Lender
Obligations.
(8) INITIAL BORROWING BASE CERTIFICATE. Duly executed originals of an initial
Borrowing Base Certificate from Borrower, dated the Closing Date, reflecting
information concerning Eligible Accounts, Eligible Inventory and Eligible WIP
Inventory of Borrower as of a date not more than two (2) Business Days prior to
the Closing Date in the case of Eligible Accounts, and as of the Fiscal Month
end immediately prior to the Closing Date, in the case of Eligible Inventory and
Eligible WIP Inventory.
(9) INITIAL NOTICE OF REVOLVING CREDIT ADVANCE. Duly executed originals of a
Notice of Revolving Credit Advance, dated the Closing Date, with respect to the
initial Revolving Credit Advance to be requested by Borrower on the Closing
Date.
(10) LETTER OF DIRECTION. Duly executed originals of a letter of direction from
Borrower addressed to Lender with respect to the disbursement on the Closing
Date of the proceeds of the Term Loan and the initial Revolving Credit Advance.
(11) CASH MANAGEMENT SYSTEM; BLOCKED ACCOUNT AGREEMENTS. Evidence satisfactory
to Lender that, as of the Closing Date, Cash Management Systems complying with
Annex C to the Agreement have been established and are currently being
maintained in the manner set forth in such Annex C, together with copies of a
duly executed tri-party blocked account agreement, satisfactory to Lender, with
the bank as required by Annex C.
(12) CONSTATING DOCUMENTS AND STATUS. Borrower's (a) constating documents and
all amendments thereto, (b) certificates of status, compliance and/or good
standing (as applicable) evidencing Borrower's qualification to conduct business
in each jurisdiction where its ownership or lease of property or the conduct of
its business requires such qualification, each dated a recent date prior to the
Closing Date and certified by the applicable authorized Governmental Authority.
(13) BYLAWS AND RESOLUTIONS. (a) Borrower's bylaws, together with all amendments
thereto and (b) resolutions of Borrower's Board of Directors and, if applicable,
shareholders, approving
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<PAGE>
and authorizing the execution, delivery and performance of the Loan Documents to
which Borrower is a party and the transactions to be consummated in connection
therewith, each certified as of the Closing Date by Borrower's corporate
secretary or an assistant secretary as being in full force and effect without
any modification or amendment.
(14) INCUMBENCY CERTIFICATES. Signature and incumbency certificates of the
officers of Borrower executing any of the Loan Documents, certified as of the
Closing Date by Borrower's corporate secretary or an assistant secretary as
being true, accurate, correct and complete.
(15) OPINIONS OF COUNSEL. Duly executed originals of opinions of Fogler,
Rubinoff, counsel for Borrower, together with any local counsel opinions
requested by Lender, each in form and substance satisfactory to Lender and its
counsel, dated the Closing Date, and each accompanied by a letter addressed to
such counsel from Borrower, authorizing and directing such counsel to address
its opinion to Lender and to include in such opinion an express statement to the
effect that Lender is authorized to rely on such opinion.
(16) OFFICER'S CERTIFICATE. Lender shall have received duly executed originals
of a certificate of the Vice-President, Finance of Borrower, dated the Closing
Date, stating that, since February 28, 1998 (or such later date of the most
recent available unaudited financial statements of Borrower delivered to Lender)
(a) no event or condition has occurred or is existing which could reasonably be
expected to have a Material Adverse Effect; (b) there has been no material
adverse change in the industry in which Borrower operates; (c) no Litigation has
been commenced which, if successful, would have a Material Adverse Effect or
could challenge any of the transactions contemplated by the Agreement and the
other Loan Documents; (d) there have been no Restricted Payments made by
Borrower except as disclosed to Lender in writing; and (e) there has been no
material increase in liabilities, liquidated or contingent, and no material
decrease in assets of Borrower.
(17) LANDLORD/BAILEE/MORTGAGEE AGREEMENTS. Lender shall have received landlord
agreements, bailee letters and mortgagee agreements in form and substance
satisfactory to Lender, in each case as required pursuant to Section 5.9.
(18) MORTGAGES. Mortgages covering all of the Real Estate (the "MORTGAGED
PROPERTIES") together with: (a) title opinions from counsel for Borrower in
respect of the Mortgaged Properties and (other than with respect to the Danforth
Property) title insurance policies, current as-built surveys, zoning letters and
certificates of occupancy, in each case, satisfactory in form and substance to
Lender, in its sole discretion; and (b) evidence that counterparts of the
Mortgages have been recorded in all places to the extent necessary or desirable,
in the judgment of Lender, to create a valid and enforceable first priority lien
(subject to Permitted Encumbrances) on each Mortgaged Property in favour of
Lender (or in favour of such other trustee as may be required or desired under
local law).
(19) SUBORDINATION AND INTERCREDITOR AGREEMENTS. Lender shall have received any
and all subordination and/or intercreditor agreements, all in form and substance
reasonably satisfactory to Lender, in its sole discretion, as Lender shall have
deemed necessary or appropriate with
D-3
respect to any Indebtedness of Borrower.
(20) APPRAISALS. Lender shall have received appraisals as to all Equipment and
as to each of the Mortgaged Properties, each of which shall be in form and
substance satisfactory to Lender; provided that, the sum of (a) eighty-five
percent (85%) of the appraised orderly liquidation value of Borrower's eligible
Equipment and (b) fifty percent (50%) of the appraised value (using a six month
sale period) of the Borrower's eligible Real Estate (2121 Markham Road,
Scarborough, Ontario) must not be less than the Term Loan Commitment. Lender
acknowledges that American Appraisal Canada, Inc. is an acceptable appraiser.
(21) FINANCIALS; FINANCIAL CONDITION. Borrower shall have provided Lender with
its current operating statements, a balance sheet and statement of cash flows,
the Projections and a Borrowing Base Certificate with respect to Borrower
certified by its Vice-President, Finance, in each case in form and substance
satisfactory to Lender, and Lender shall be satisfied, in its sole discretion,
with all of the foregoing. Lender shall have further received a certificate of
the Vice-President, Finance of Borrower, based on the Projections, to the effect
that (a) Borrower will be Solvent upon the consummation of the transactions
contemplated herein; and (b) the Projections are based upon estimates and
assumptions stated therein, all of which Borrower believes to be reasonable and
fair in light of current conditions and current facts known to Borrower and, as
of the Closing Date, reflect Borrower's good faith and reasonable estimates of
its future financial performance and of the other information projected therein
for the period set forth therein.
(22) OTHER DOCUMENTS. Such other certificates, documents and agreements
respecting Borrower as Lender may, in its sole discretion, request.
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<PAGE>
ANNEX E (SECTION 4.1(1))
TO
CREDIT AGREEMENT
FINANCIAL STATEMENTS AND PROJECTIONS -- REPORTING
Borrower shall deliver or cause to be delivered to Lender the
following:
(1) MONTHLY FINANCIALS. Within thirty (30) days after the end of each Fiscal
Month, financial information regarding Borrower, certified by the
Vice-President, Finance of Borrower, consisting of (i) unaudited balance sheets
as of the close of such Fiscal Month and the related statements of income and
cash flow for that portion of the Fiscal Year ending as of the close of such
Fiscal Month; (ii) unaudited statements of income and cash flows for such Fiscal
Month, setting forth in comparative form the figures for the corresponding
period in the prior year (recognizing, however, that the comparisons may only be
close approximations in form in light of Borrower's adoption, commencing
September 28, 1998, of the Fiscal Quarter and Fiscal Year accounting periods
defined in the Agreement) and the figures contained in the Projections for such
Fiscal Year, all prepared in accordance with GAAP (subject to normal year-end
adjustments); and (iii) a summary of the outstanding balance of all Intercompany
Notes and Intercompany Loans as of the last day of that Fiscal Month. Such
financial information shall be accompanied by (A) a statement in reasonable
detail (each, a "Compliance Certificate") showing the calculations used in
determining compliance with each financial covenant set forth on Annex G which
is tested on a monthly basis, and (B) the certification of the Vice-President,
Finance of Borrower that (i) such financial information presents fairly in
accordance with GAAP (subject to normal year-end adjustments) the financial
position and results of operations of Borrower, in each case as at the end of
such month and for the period then ended and (ii) any other information
presented is true, correct and complete in all material respects and that there
was no Default or Event of Default in existence as of such time or, if a Default
or Event of Default shall have occurred and be continuing, describing the nature
thereof and all efforts undertaken to cure such Default or Event of Default;
(2) MANAGEMENT DISCUSSION AND ANALYSIS. Borrower shall deliver to Lender within
forty-five (45) days after the end of each Fiscal Quarter, a management
discussion and analysis which includes a comparison to budget for that Fiscal
Quarter and a comparison of performance for that Fiscal Quarter to the
corresponding period in the prior year.
(3) OPERATING PLAN. As soon as available, but not later than thirty (30) days
after the commencement of each Fiscal Year, an annual operating plan for
Borrower, approved by the Board of Directors of Borrower, for the following
year, which will include a statement of all of the material assumptions on which
such plan is based, will include monthly balance sheets and a monthly budget for
the following year and will integrate sales, gross profits, operating expenses,
operating profit, cash flow projections and Borrowing Availability projections
all prepared on the same basis and in similar detail as that on which operating
results are reported (and in the case of cash flow projections, representing
management's good faith estimates of future financial
E-1
<PAGE>
performance based on historical performance), and including plans for personnel,
Capital Expenditures and facilities;
(4) ANNUAL AUDITED FINANCIALS. Within ninety (90) days after the end of each
Fiscal Year, audited Financial Statements for Borrower, consisting of balance
sheets and statements of income and retained earnings and cash flows, setting
forth in comparative form in each case the figures for the previous Fiscal Year,
which Financial Statements shall be prepared in accordance with GAAP, certified
without qualification, by an independent chartered public accounting firm of
national standing or otherwise acceptable to Lender. Such Financial Statements
shall be accompanied by (i) a statement prepared in reasonable detail showing
the calculations used in determining compliance with each of the financial
covenants set forth on Annex G, (ii) a report from such accounting firm to the
effect that, in connection with their audit examination, nothing has come to
their attention to cause them to believe that a Default or Event of Default has
occurred (or specifying those Defaults and Events of Default that they became
aware of), it being understood that such audit examination extended only to
accounting matters and that no special investigation was made with respect to
the existence of Defaults or Events of Default, (iii) the annual letters to such
accountants in connection with their audit examination detailing contingent
liabilities and material litigation matters, and (iv) the certification of the
Vice-President, Finance of Borrower that all such Financial Statements present
fairly in accordance with GAAP the financial position, results of operations and
statements of cash flows of Borrower as at the end of such year and for the
period then ended, and that there was no Default or Event of Default in
existence as of such time or, if a Default or Event of Default shall have
occurred and be continuing, describing the nature thereof and all efforts
undertaken to cure such Default or Event of Default;
(5) MANAGEMENT LETTERS. Within five (5) Business Days after receipt thereof by
Borrower, copies of all management letters, exception reports or similar letters
or reports received by Borrower from its independent chartered public
accountants;
(6) DEFAULT NOTICES. As soon as practicable, and in any event within five (5)
Business Days after an executive officer of Borrower has actual knowledge of the
existence of any Default, Event of Default or other event which has had a
Material Adverse Effect, telephonic or telecopied notice specifying the nature
of such Default or Event of Default or other event, including the anticipated
effect thereof, which notice, if given telephonically, shall be promptly
confirmed in writing on the next Business Day;
(7) SECURITIES FILINGS AND PRESS RELEASES. Promptly upon their becoming
available, copies of: (i) all Financial Statements, reports, notices and proxy
statements made publicly available by Borrower to its security holders; (ii) all
regular and periodic reports and all registration statements and prospectuses,
if any, filed by Borrower with any securities exchange, commission or
governmental or public or private regulatory authority; and (iii) all press
releases and other statements made available by Borrower to the public
concerning material changes or developments in the business of any such Person;
(8) SUBORDINATED DEBT. As soon as practicable, copies of all material written
notices given
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<PAGE>
or received by Borrower with respect to any Subordinated Debt of Borrower, and,
within two (2) Business Days after Borrower obtains knowledge of any matured or
unmatured event of default with respect to any Subordinated Debt, notice of such
event of default;
(9) SUPPLEMENTAL SCHEDULES. Supplemental disclosures, if any, required by
Section 5.6 of the Agreement;
(10) LITIGATION. In writing, promptly upon learning thereof, notice of any
Litigation commenced or threatened against Borrower that (i) seeks damages in
excess of $150,000, (ii) seeks injunctive relief, (iii) alleges criminal
misconduct by Borrower, (iv) alleges the violation of any law regarding, or
seeks remedies in connection with, any Environmental Liabilities, or (v)
involves any product recall;
(11) INSURANCE NOTICES. Disclosure of losses or casualties required by Section
5.4 of the Agreement;
(12) LEASE DEFAULT NOTICES. Copies of (i) any and all default notices received
under or with respect to any leased location or public warehouse where
Collateral is located, and (ii) such other notices or documents as Lender may
request in its reasonable discretion;
(13) LEASE AMENDMENTS. Copies of all material amendments to real estate leases;
and
(14) OTHER DOCUMENTS. Such other financial and other information respecting
Borrower's business or financial condition as Lender shall, from time to time,
request (provided that, prior to the occurrence of a Default or an Event of
Default that is continuing, Lender shall exercise its discretion reasonably in
making each such request).
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<PAGE>
ANNEX F (SECTION 4.1(2))
TO
CREDIT AGREEMENT
COLLATERAL REPORTS
Borrower shall deliver or cause to be delivered to Lender the
following:
(1) Upon Lender's request, and in no event less frequently than ten (10)
Business Days after the end of each Fiscal Month, each of the
following:
(A) a Borrowing Base Certificate accompanied by such supporting
detail and documentation as shall be requested by Lender in its
reasonable discretion;
(B) a summary of Inventory by location and type with a supporting
perpetual Inventory report (for finished goods Inventory), in
each case accompanied by such supporting detail and documentation
as shall be requested by Lender in its reasonable discretion;
(C) a report on Borrower's finished goods Inventory on hand and on
Borrower's finished goods Inventory sales for the then most
recently ended twelve Fiscal Months, in each case, by customer;
(D) a report on the market price per ton and tons of (i) polyethylene
cup stock, (ii) number 2 printed cup stock, (iii) number 1
unprinted cup stock and (iv) corregate of Borrower and the market
price per pound and pounds of resin Inventory of Borrower; and
(E) a monthly trial balance showing Accounts outstanding aged from
invoice due date as follows: 1 to 30 days, 31 to 60 days, 61 to
90 days and 91 days or more, accompanied by such supporting
detail and documentation as shall be requested by Lender in its
reasonable discretion.
(2) At the time of delivery of each of the monthly Financial Statements
delivered pursuant to Annex E, a reconciliation of the Accounts trial
balance and month-end Inventory reports of Borrower to Borrower's
general ledger and monthly Financial Statements delivered pursuant to
such Annex E, in each case accompanied by such supporting detail and
documentation as shall be requested by Lender in its reasonable
discretion;
(3) At the time of delivery of each of the annual Financial Statements
delivered pursuant to Annex E, (i) a listing of government contracts
of Borrower subject to any of the requirements or procedures
applicable to assignments of accounts under the Financial
Administration Act (Canada), as amended or any similar
F-1
<PAGE>
provincial, local or foreign law; and (ii) a list of any applications
for the registration of any Intellectual Property with the Canadian
Industrial Design Office, Canadian Patent Office, Canadian
Intellectual Property Office, Canadian Copyright Office or any similar
office or agency which Borrower has filed in the prior Fiscal Year;
(a) Borrower, at its own expense, shall deliver to Lender the results of
each verification, if any, which Borrower may in its discretion have
made, or caused any other Person to have made on its behalf (except
daily Inventory cycle reports/counts), of all or any portion of their
Inventory (and, if a Default or an Event of Default shall have
occurred and be continuing, Borrower shall, upon the request of
Lender, conduct, and deliver the results of, such physical
verifications as Lender may require);
(b) Borrower, at its own expense, shall deliver to Lender such appraisals
of its assets as Lender may request at any time after the occurrence
and during the continuance of a Default or an Event of Default, such
appraisals to be conducted by an appraiser, and in form and substance,
satisfactory to Lender; and
(c) Such other reports, statements and reconciliations with respect to the
Borrowing Base or Collateral as Lender shall from time to time request
in its reasonable discretion.
F-2
<PAGE>
ANNEX G (SECTION 6.9)
TO
CREDIT AGREEMENT
FINANCIAL COVENANTS
Borrower shall not breach or fail to comply with any of the following
financial covenants, each of which shall be calculated in accordance with GAAP
consistently applied:
(1) MAXIMUM CAPITAL EXPENDITURES. Borrower shall not make Capital Expenditures
during the following periods that exceed in the aggregate the amounts set forth
opposite each of such periods:
Period Maximum Capital Expenditures per Period
------ ---------------------------------------
1998 Fiscal Year $7,800,000
1999 Fiscal Year $7,350,000
2000 Fiscal Year $2,000,000
Nine (9) consecutive Fiscal Months $1,500,000
ending June 30, 2001
; provided, however, that the amount of permitted Capital Expenditures
referenced above will be increased in any period by the positive amount equal to
the amount (if any), equal to the difference obtained by taking the Capital
Expenditures limit specified above for the immediately prior period minus the
actual amount of any Capital Expenditures expended during such prior period (the
"CARRY OVER AMOUNT"), and for purposes of measuring compliance herewith, the
Carry Over Amount shall be deemed to be the first amount spent on Capital
Expenditures in that succeeding year.
(2) MINIMUM FIXED CHARGE COVERAGE RATIO. Borrower shall have at the end of each
Fiscal Month set forth below for the indicated period then ended, a Fixed Charge
Coverage Ratio of not less than 1.0:1.0:
Nine (9) Fiscal Months ending June 30, 1998; Ten (10) Fiscal Months
ending July 31, 1998; Eleven (11) Fiscal Months ending August 31, 1998;
Twelve (12) Fiscal Months ending September 30, 1998; and
Twelve (12) consecutive Fiscal Months ending on the last day of each
Fiscal Month in each Fiscal Year ending after September 30, 1998.
G-1
<PAGE>
(3) MINIMUM BORROWING AVAILABILITY. Borrower shall maintain at all times minimum
borrowing availability against the Borrowing Base of $500,000.
Unless otherwise specifically provided herein, any accounting term used
in the Agreement shall have the meaning customarily given such term in
accordance with GAAP, and all financial computations hereunder shall be computed
in accordance with GAAP consistently applied. That certain items or computations
are explicitly modified by the phrase "in accordance with GAAP" shall in no way
be construed to limit the foregoing. If any "Accounting Changes" (as defined
below) occur and such changes result in a change in the calculation of the
financial covenants, standards or terms used in the Agreement or any other Loan
Document, then Borrower and Lender agree to enter into negotiations in order to
amend such provisions of the Agreement so as to equitably reflect such
Accounting Changes with the desired result that the criteria for evaluating
Borrower's financial condition shall be the same after such Accounting Changes
as if such Accounting Changes had not been made. "ACCOUNTING CHANGES" means (a)
changes in accounting principles required by the promulgation of any rule,
regulation, pronouncement or opinion by the Canadian Institute of Chartered
Accountants (or successor thereto or any agency with similar functions); and (b)
changes in accounting principles concurred in by Borrower's independent
chartered public accountants. All such adjustments resulting from expenditures
made subsequent to the Closing Date (including capitalization of costs and
expenses or payment of pre-Closing Date liabilities) shall be treated as
expenses in the period the expenditures are made and deducted as part of the
calculation of EBITDA in such period. If Borrower and Lender agree upon the
required amendments, then after appropriate amendments have been executed and
the underlying Accounting Change with respect thereto has been implemented, any
reference to GAAP contained in the Agreement or in any other Loan Document
shall, only to the extent of such Accounting Change, refer to GAAP, consistently
applied after giving effect to the implementation of such Accounting Change. If
Borrower and Lender cannot agree upon the required amendments within thirty (30)
days following the date of implementation of any Accounting Change, then all
Financial Statements delivered and all calculations of financial covenants and
other standards and terms in accordance with the Agreement and the other Loan
Documents shall be prepared, delivered and made without regard to the underlying
Accounting Change.
G-2
<PAGE>
ANNEX H (SECTION 1.1(3))
TO
CREDIT AGREEMENT
LENDER'S WIRE TRANSFER INFORMATION
GE Capital Canada
Royal Bank of Canada
200 Bay Street
Main Branch
Toronto, Ontario
Bank No.: 003
Transfer No.: 00002
Accounts Name: GECCI-COMM FIN
Cdn$ Account No.: 1011519
Reference: CFC 4114B
US$ Account No.: 4002739
Reference: CFC4114C
H-1
<PAGE>
ANNEX I (SECTION 11.10)
TO
CREDIT AGREEMENT
NOTICE ADDRESSES
(A) If to Lender, at
General Electric Capital Canada Inc.
123 Front Street West
Suite 1400
Toronto, Ontario
M5J 2M2
Attention: Vice President, Commercial Finance
Telecopier No.: (416) 842-1750
Telephone No.: (416) 842-1751
with copies to:
General Electric Capital Corporation
201 High Ridge Road
Stamford, Connecticut
06927-5100
Attention: Lily Cups Inc. Account Manager (Chris Arnold)
Telecopier No.: (203) 316-7823
Telephone No.: (203) 316-7577
and
General Electric Capital Corporation
201 High Ridge Road
Stamford, Connecticut 06927-5100
Attention: Corporate Counsel-Commercial Finance
Telecopier No.: (203) 316-7889
Telephone No.: (203) 316-7552
(B) If to Borrower, at
Lily Cups Inc.
300 Danforth Road
Scarborough, Ontario
M1L 3X5
Attention: Vice-President, Finance
Telecopier No.: (416) 691-3511
I-1
<PAGE>
Telephone No.: (416) 691-2180
with a copy to:
Fogler, Rubinoff
Barristers & Solicitors
Suite 4400
P.O. Box 95
Royal Trust Tower
Toronto-Dominion Centre
Toronto, Ontario
M5K 1G8
Attention: Dan Ford
Telecopier No.: (416) 941-8852
Telephone No.: (416) 941-8841
I-2
<PAGE>
SCHEDULE 1.1 - REPRESENTATIVE OF LENDER
General Electric Capital Canada Inc.
123 Front Street West
Suite 1400
Toronto, Ontario
M5J 2H2
Attention: Vice-President, Commercial Finance
Telecopier No.: (416) 842-1750
Telephone No.: (416) 842-1751
with a copy to:
General Electric Capital Corporation
201 High Ridge Road
Stamford, Connecticut
06927-5100
Attention: Lily Cups Inc. Portfolio Analyst (Yoav Horan)
Telecopier No.: (203) 316-7816
Telephone No.: (203) 316-7899
1.1-1
<PAGE>
SCHEDULE 1.4 - USE OF PROCEEDS
<TABLE>
<CAPTION>
A. USES ON CLOSING DATE (CDN.)
- ------------------------ ------
<S> <C>
1. Repayment of Prior Lender Obligations $ 8,035,519.06
2. Payment of all Indebtedness for borrowed money owing to Sweetheart $ 2,900,000.00
3. Trade Payables/Management Fees owing to Sweetheart $ 2,300,000.00
4. Fees to Lender $ 189,945.22
--------------
Total $13,425,464.28
</TABLE>
B. FLOW OF FUNDS ON CLOSING DATE
1. Scotia Bank, Scotia Plaza Branch, Transit No. 80002 Attention: Loan
Processing Dept. - Lily Cups Inc.
2.& 3. Borrower's Disbursement Account (General) (CAD) under Blocked Account
Agreement for subsequent disbursement to Sweetheart, being:
The Bank of Nova Scotia
Scotia Plaza
44 King Street West
Toronto, Ontario
M5H 1H1
Bank No. 002
Transit No. 80002
Account No. 0500313
4. Direct charge by Lender to Revolving Loan.
1.4-1
<PAGE>
SCHEDULE 3.2 - EXECUTIVE OFFICES
300 Danforth Road
Scarborough, Ontario
M1L 3X5
3.2-1
<PAGE>
SCHEDULE 3.4(1) - FINANCIAL STATEMENTS
Attached
3.4(1)
<PAGE>
SCHEDULE 3.4(2) - PROJECTIONS
Attached
3.4(2)-1
<PAGE>
SCHEDULE 3.6 - OWNERSHIP OF PROPERTY; LIENS
Attached
3.6-1
<PAGE>
SCHEDULE 3.7 - LABOUR MATTERS
Attached
3.7-1
<PAGE>
SCHEDULE 3.8 - VENTURES, SUBSIDIARIES AND AFFILIATES;
OUTSTANDING STOCK AND INDEBTEDNESS
Attached
3.8-1
<PAGE>
SCHEDULE 3.9 - GOVERNMENT REGULATIONS
None
3.9-1
<PAGE>
SCHEDULE 3.10 - TAXES
Attached
3.10-1
<PAGE>
SCHEDULE 3.11 - CANADIAN PENSION AND BENEFIT PLANS
Attached
3.11-1
<PAGE>
SCHEDULE 3.12 - NO LITIGATION
Attached
3.12-1
<PAGE>
SCHEDULE 3.14 - INTELLECTUAL PROPERTY
Attached
3.14-1
<PAGE>
SCHEDULE 3.16 - ENVIRONMENTAL MATTERS
Attached
3.16-1
<PAGE>
SCHEDULE 3.17 - INSURANCE
1. Policy Nos. RMGL113-51-157 and BE-357-1274 by National Union Insurance
(AIG) in favour of Sweetheart and its Subsidiaries (including Borrower).
2. Policy No. 0723701-95 by Protection Mutual in favour of Sweetheart and its
Subsidiaries (including Borrower).
* Particulars of coverage in respect of each of the above policies is as set
forth on the attached Certificates of Insurance.
3.17-1
<PAGE>
SCHEDULE 3.18 - DEPOSIT AND DISBURSEMENT ACCOUNTS
Attached
3.18-1
<PAGE>
SCHEDULE 3.19 - GOVERNMENT CONTRACTS
None
3.19-1
<PAGE>
SCHEDULE 3.21 - AGREEMENTS AND OTHER DOCUMENTS
(a) Supply Agreement dated November 6, 1995 between Borrower and Wendy's
International Inc.;
(b) Supply Agreement dated February 1, 1997 between Borrower and Southland
(7-Eleven) Canada; and
(c) Supply Letter Agreement dated November 11, 1997 between Sweetheart and
Perseco.
3.21-1
<PAGE>
SCHEDULE 5.1 - MAINTENANCE OF EXISTENCE
Attached
5.1-1
<PAGE>
SCHEDULE 6.3 - INDEBTEDNESS
None
6.3-1
<PAGE>
SCHEDULE 6.4(1) - EMPLOYEE LOANS AND AFFILIATE TRANSACTIONS
Attached
6.4(1)-1
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE 6.7 - LIENS
- -------------- ---------------------- --------------------------------- --------------------- --------------------------------------
SECURED COLLATERAL GENERAL COLLATERAL REFERENCE FILE NO.
PARTY(IES) CLASSIFICATION DESCRIPTION & REGISTRATION
NUMBER(S) COMMENTS
- -------------- ---------------------- --------------------------------- --------------------- --------------------------------------
<S> <C> <C> <C> <C>
General Inventory, 841238352- Two addresses listed for the
Electric Equipment, Accounts, 980529 1737 1590 debtor.
Capital Other, Motor Vehicles 4287 (5 years)
Canada Inc.
- -------------- ---------------------- --------------------------------- --------------------- --------------------------------------
Harmon Equipment Two Kargo 60" vertical balers, 081689598- Two addresses listed for the
Assoc. Ltd. Serial #B-86567 and B-86568, 970923 0953 0043 debtor.
one at each location listed in 2014 (5 years)
items 04 and 07 above. This
statement is filed only to
reflect the ownership of this
equipment by secured part (sic)
- -------------- ---------------------- --------------------------------- --------------------- --------------------------------------
OE Financial Equipment Canon equipment and accessories 825456492-
Services Inc. Date of Maturity: 961008 1443 1146
03OCT00 0735 (4 years)
- -------------- ---------------------- --------------------------------- --------------------- --------------------------------------
PHH Vehicle Equipment, Other, 821895165-
Management Motor Vehicles 960514 1916 1529
Services Inc. 5538 (3 years)
- -------------- ---------------------- --------------------------------- --------------------- --------------------------------------
Pallet Equipment CPC Pallets 079532838- Note, debtor is referenced
Rental 951121 1109 0004 as "Lily Cups Incorporated".
Systems Inc. 8299 (3 years)
- -------------- ---------------------- --------------------------------- --------------------- --------------------------------------
The Bank of Equipment, Other 817089084-
Nova Scotia Secured Amount: 950929 1754 1513
- - Credit $73,017 6215 (5 years)
Support
Department
- -------------- ---------------------- --------------------------------- --------------------- --------------------------------------
Dupont Equipment Crosfield Magnasetter 750 805726476-
Canada Inc. Imagesetter Model Number 750 940221 2049 1529
Serial Number 5743059 7183 (5 years)
- -------------- ---------------------- --------------------------------- --------------------- --------------------------------------
General Equipment, Other, 428213088-
Electric Motor Vehicles 920914 0807 0043
Capital
Canada
- -------------- ---------------------- --------------------------------- --------------------- --------------------------------------
6.7-1
<PAGE>
- -------------- ---------------------- --------------------------------- --------------------- --------------------------------------
SECURED COLLATERAL GENERAL COLLATERAL REFERENCE FILE NO.
PARTY(IES) CLASSIFICATION DESCRIPTION & REGISTRATION
NUMBER(S) COMMENTS
- -------------- ---------------------- --------------------------------- --------------------- --------------------------------------
Leasing Inc. 8472 (10 years)
- -------------- ---------------------- --------------------------------- --------------------- --------------------------------------
assigned by: 940818 Assigned by Triathalon
2139 1254 1034 Leasing Inc. to General
Electric Capital Canada
Leasing Inc.
- -------------- ---------------------- --------------------------------- --------------------- --------------------------------------
</TABLE>
Those Liens described in Schedule 3.6.
Liens (only in the form of personal property security registrations) in favour
of the Prior Lender as at the Closing Date registered in the applicable Personal
Property Registry Office of British Columbia, Alberta, Saskatchewan and Manitoba
provided that the registrations do not perfect any existing security and the
same shall be discharged immediately following the Closing Date.
6.7-2
<PAGE>
EXHIBIT 1.1(1)(A)
LILY CUPS INC.
NOTICE OF REVOLVING CREDIT ADVANCE -- [DATE OF NOTICE]
Capitalized terms used herein without definition are so used as defined
in the Credit Agreement dated as of June 15, 1998 between Lily Cups Inc.
("BORROWER") and General Electric Capital Canada Inc. (as amended, restated,
supplemented and modified from time to time). Borrower hereby (i) represents and
warrants that all of the conditions contained in Section 2.2 of the Credit
Agreement have been satisfied on and as of the date hereof, and will continue to
be satisfied on and as of the date of the Revolving Credit Advance requested
hereby, before and after giving effect thereto and to the application of the
proceeds therefrom; and (ii) reaffirms the continuance of Lender's Liens
pursuant to the Collateral Documents.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Client and Address Lily Cups Inc. Name of Contact Bruce Wells Phone (416) 691-2181
x208
300 Danforth Rd. Fax (416) 691-3511
Toronto, Ont M1L 3X5
Bank Address The Bank of Nova Scotia Wire Information Transit#
Cdn$ Acct#
Bank Contact Robert Lockie (Telephone No.: (416) 866-7086) US$ Acct#
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Borrower irrevocably requests that Lender make a Revolving Credit Advance on
[Date] in the aggregate amount of CDN$ . Borrower also irrevocably requests that
Lender convert CDN$ of the requested Revolving Credit Advance into the US Dollar
Amount thereof before wiring the proceeds of that Revolving Credit Advance to
the designated Disbursement Account.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Collateral Availability Information
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Gross A/R Balance (from previous request dated MM/DD/YY) $ -
---------------
Plus: Sales (from MM/DD/YY to MM/DD/YY) + $ -
--------------------
Minus: Cash Receipts Applied (MM/DD/YY) - $ -
--------------------
Minus: Credit Memos (from MM/DD/YY to MM/DD/YY) - $ -
--------------------
Minus: Discounts (from MM/DD/YY to MM/DD/YY) - $ -
--------------------
Plus/Minus: Other Debits/Credits (from MM/DD/YY to MM/DD/YY) +/- $ -
--------------------
Explanation______________________________
A/R Balance (as of MM/DD/YY) $ -
--------------------
Less: Ineligibles (Borrowing Base Certificate dated MM/DD/YY) - $ -
--------------------
Eligible A/R $ -
--------------------
Available A/R (Advance rate 85%) D $ -
-------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Available Raw Material and Finished Goods Inventory (B from Borrowing Base) E $ -
--------------------
Available Work in Process Inventory (C from Borrowing Base) F $ -
--------------------
- ------------------------------------------------------------------------------------------------------------------------------------
D + E + F G $ -
--------------------
Less: Collateral Reserves H $ -
--------------------
G-H I $ -
--------------------
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL AVAILABLE: LESSER OF: LINE I OR MAXIMUM AMOUNT $ -
--------------------
Less: Revolver (J) - $ -
-------------
Less: Outstanding Letters of Credit - $ -
-------------
Less: Reserves - $ -
-------------
- $ -
-------------
- ------------------------------------------------------------------------------------------------------------------------------------
Excess Availability $ -
- ------------------------------------------------------------------------------------------------------------------------------------
Loan Balance
- ------------------------------------------------------------------------------------------------------------------------------------
Revolver Balance (Line J from Last Request Dated MM/DD/YY) $ -
--------------------
Minus: Deposit Sweep From Last to Current Request - $ -
--------------------
Plus: Current Amount Requested (from above) + $ -
--------------------
Plus: Interest/Other (from MM/DD/YY to MM/DD/YY) + $ -
--------------------
Minus: Other (from MM/DD/YY to MM/DD/YY) - $ -
--------------------
Revolver Balance After Advance J $ -
------------------
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Borrower has caused this Notice to be executed by its duly authorized
officer as of the date and year first written above.
LILY CUPS INC.
PHONE FAX
Requested by: _________________________ (416) 691-2181 x208 (416) 691-3511
Duly Authorized Signatory
- --------------------------------------------------------------------------------
Fax to: GE Capital (416) 842-1750 and (203) 316-7816 Phone: (203) 316-7899
- --------------------------------------------------------------------------------
Exhibit 1.1(1)(a)-1
<PAGE>
EXHIBIT 1.1(1)(B)
FORM OF REVOLVING NOTE
Toronto, Ontario
$10,000,000
FOR VALUE RECEIVED, the undersigned, Lily Cups Inc., an
Ontario corporation ("BORROWER"), HEREBY PROMISES TO PAY to the order of GENERAL
ELECTRIC CAPITAL CANADA INC., a Canada corporation ("LENDER"), at the offices of
GENERAL ELECTRIC CAPITAL CANADA INC., at its address at 123 Front Street, Suite
1400, Toronto, Ontario, or at such other place as Lender may designate from time
to time in writing, in lawful money of Canada and in immediately available
funds, the amount of TEN MILLION DOLLARS ($10,000,000) or, if less, the
aggregate unpaid amount of all Revolving Credit Advances made to the undersigned
under the "Credit Agreement" (as hereinafter defined). All capitalized terms
used but not otherwise defined herein have the meanings given to them in the
Credit Agreement or in Annex A thereto.
This Revolving Note is issued pursuant to that certain Credit
Agreement dated as of June 15, 1998 between Borrower and Lender (including all
annexes, exhibits and schedules thereto, and as from time to time amended,
restated, supplemented or otherwise modified, the "CREDIT AGREEMENT"), and is
entitled to the benefit and security of the Credit Agreement, the Security
Agreement and all of the other Loan Documents referred to therein. Reference is
hereby made to the Credit Agreement for a statement of all of the terms and
conditions under which the Loans evidenced hereby are made and are to be repaid.
The date and amount of each Revolving Credit Advance made by Lender to Borrower,
the rates of interest applicable thereto and each payment made on account of the
principal thereof, shall be recorded by Lender on its books; provided that the
failure of Lender to make any such recordation shall not affect the obligations
of Borrower to make a payment when due of any amount owing under the Credit
Agreement or this Note in respect of the Revolving Credit Advances made by
Lender to Borrower.
The principal amount of the indebtedness evidenced hereby
shall be payable in the amounts and on the dates specified in the Credit
Agreement, the terms of which are hereby incorporated herein by reference.
Interest thereon shall be paid until such principal amount is paid in full at
such interest rates and at such times, and pursuant to such calculations, as are
specified in the Credit Agreement.
If any payment on this Revolving Note becomes due and payable
on a day other than a Business Day, the maturity thereof shall be extended to
the next succeeding Business Day
EXH. 1.1(1)(b)-1
<PAGE>
and, with respect to payments of principal, interest thereon shall be payable at
the then applicable rate during such extension.
Upon and after the occurrence of any Event of Default, this
Revolving Note may, as provided in the Credit Agreement, and without demand,
notice or legal process of any kind, be declared, and immediately shall become,
due and payable.
Time is of the essence of this Revolving Note. Demand,
presentment, protest and notice of nonpayment and protest are hereby waived by
Borrower.
Except as provided in the Credit Agreement, this Revolving
Note may not be assigned by Lender to any Person.
THIS REVOLVING NOTE SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE PROVINCE OF ONTARIO APPLICABLE TO CONTRACTS MADE
AND PERFORMED IN THAT PROVINCE.
LILY CUPS INC.
By: /s/ Bruce Wells c/s
-------------------
Title: Vice President, Finance
Exhibit 1.1(1)(b)-2
<PAGE>
EXHIBIT 1.1(2)
FORM OF TERM NOTE
Toronto, Ontario
$10,000,000
FOR VALUE RECEIVED, the undersigned, Lily Cups Inc., an
Ontario corporation ("BORROWER"), HEREBY PROMISES TO PAY to the order of GENERAL
ELECTRIC CAPITAL CANADA INC., a Canada corporation ("LENDER"), at the offices of
GENERAL ELECTRIC CAPITAL CANADA INC., at its address at 123 Front Street, Suite
1400, Toronto, Ontario, or at such other place as Lender may designate from time
to time in writing, in lawful money of Canada and in immediately available
funds, the amount of TEN MILLION DOLLARS ($10,000,000), or if less, the
aggregate unpaid amount of the Term Loan made to the undersigned. All
capitalized terms used but not otherwise defined herein have the meanings given
to them in the "Credit Agreement" (as hereinafter defined) or in Annex A
thereto.
This Term Note is issued pursuant to that certain Credit
Agreement dated as of June 15, 1998 between Borrower and Lender (including all
annexes, exhibits and schedules thereto and as from time to time amended,
restated, supplemented or otherwise modified, the "CREDIT AGREEMENT"), and is
entitled to the benefit and security of the Credit Agreement, the Security
Agreement and all of the other Loan Documents referred to therein. Reference is
hereby made to the Credit Agreement for a statement of all of the terms and
conditions under which the Loans evidenced hereby are made and are to be repaid.
The principal balance of the Term Loan, the rates of interest applicable thereto
and the date and amount of each payment made on account of the principal
thereof, shall be recorded by Lender on its books; provided that the failure of
Lender to make any such recordation shall not affect the obligations of Borrower
to make a payment when due of any amount owing under the Credit Agreement or
this Term Note.
The principal amount of the indebtedness evidenced hereby
shall be payable in the amounts and on the dates specified in the Credit
Agreement. Interest thereon shall be paid until such principal amount is paid in
full at such interest rates and at such times, and pursuant to such
calculations, as are specified in the Credit Agreement. The terms of the Credit
Agreement are hereby incorporated herein by reference.
If any payment on this Term Note becomes due and payable on a
day other than
Exhibit 1.1(2)-1
<PAGE>
a Business Day, the maturity thereof shall be extended to the next succeeding
Business Day and, with respect to payments of principal, interest thereon shall
be payable at the then applicable rate during such extension.
Upon and after the occurrence of any Event of Default, this
Term Note may, as provided in the Credit Agreement, and without demand, notice
or legal process of any kind, be declared, and immediately shall become, due and
payable.
Time is of the essence of this Term Note. Demand, presentment,
protest and notice of nonpayment and protest are hereby waived by Borrower.
Except as provided in the Credit Agreement, this Term Note may
not be assigned by Lender to any Person.
THIS TERM NOTE SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE PROVINCE OF ONTARIO APPLICABLE TO CONTRACTS MADE
AND PERFORMED IN THAT PROVINCE.
LILY CUPS INC.
By: /s/ Bruce Wells c/s
-------------------
Title: Vice President, Finance
Exhibit 1.1(2)-2
<PAGE>
EXHIBIT 4.1(2)
LILY CUPS INC.
FORM OF BORROWING BASE CERTIFICATE
Pursuant to the Credit Agreement dated as of June 15, 1998 between the
undersigned and GENERAL ELECTRIC CAPITAL CANADA INC., as Lender (as amended,
restated, supplemented and otherwise modified, the "Credit Agreement"), the
undersigned certifies that as of the close of business on the date set forth
below, the Borrowing Base is computed as set forth below.
The undersigned represents and warrants that this Borrowing Base Certificate is
a true and correct statement of, and that the information contained herein is
true and correct in all respects regarding, the status of Eligible Accounts,
Eligible Inventory, and Eligible WIP Inventory and that the amounts reflected
herein are in compliance with the provisions of the Credit Agreement. The
Borrower further represents and warrants that there is no Default or Event of
Default and all representations and warranties contained in the Credit Agreement
and other Loan Documents are true and correct. The undersigned understands that
General Electric Capital Canada Inc. will extend loans in reliance upon the
information contained herein. In the event of a conflict between the following
summary of eligibility criteria and Sections 1.6 and 1.7 of the Credit
Agreement, the Credit Agreement shall govern. Capitalized terms used herein and
not otherwise defined herein shall have the meanings specified in the Credit
Agreement.
<TABLE>
<CAPTION>
ACCOUNTS RECEIVABLE BALANCE (As of MM/DD/YY) $_________________
Less: Past Due Accounts (>90 Days) $_________________
- ----
<S> <C> <C> <C>
Cross-age (>50% past due) $_________________
Credit Balances >90 days $_________________
Foreign Accounts $_________________
Nfld and NWT Accounts $_________________
Government Accounts $_________________
Contra Accounts $_________________
Items in Dispute $_________________
Intercompany $_________________
Credit and Rebill $_________________
Other ineligibles as per S.1.6 of Credit Agreement $_________________
Unapplied Cash as of MM/DD/YY $_________________
Total Ineligible A/R - $_________________
Eligible Accounts Receivable $_________________
AVAILABLE A/R AT [ADVANCE RATE 85%] A $_________________
- ------------------------------------------------------------------------------------------------------------------------------------
RAW MATERIAL AND FINISHED GOODS INVENTORY (as of MM/DD/YY) $_________________
Less: Accessories $_________________
- ----
Finished Goods in Transit $_________________
Quality Control $_________________
Additional Excess/Obsolete Provision $_________________
Packaging Material $_________________
Preprinted Blanks $_________________
Miscellaneous Inventory $_________________
Offsite Inventory (other than at 1995 Markham Road) $_________________
Other ineligibles as per S.1.7 of Credit Agreement $_________________
Total Ineligible Raw Material and Finished Goods Inventory - $_________________
Eligible Raw Material and Finished Goods Inventory $_________________
AVAILABLE RAW MATERIAL AND FINISHED GOODS INVENTORY AT [ADVANCE RATE 60%] B $_________________
- ------------------------------------------------------------------------------------------------------------------------------------
WORK IN PROCESS INVENTORY (As of MM/DD/YY) $_________________
Less: Other: ___________________________ $_________________
- ----
Total Ineligible Work in Process Inventory - $_________________
Eligible Work in Process Inventory $_________________
AVAILABLE WORK IN PROCESS INVENTORY AT [ADVANCE RATE 25%] [NOT TO EXCEED $1,000,000] C $_________________
- ------------------------------------------------------------------------------------------------------------------------------------
BORROWING BASE AVAILABILITY (BEFORE RESERVES) (A+B+C) D $_________________
Accrued employee income tax deductions/
withholdings not yet remitted $__________________
Goods and Services Tax required to be
collected and not yet remitted $__________________
Provincial Sales Tax required to be
Exhibit 4.1(2)-1
<PAGE>
collected but not yet remitted $__________________
Accrued employee health taxes not yet
remitted $__________________
Municipal and business taxes due and
unpaid $__________________
Workers' compensation premiums/
contributions $__________________
Accrued employee vacation pay not yet
paid $__________________
Canada Pension Plan and Provincial
Pension Plan contributions required to be
withheld and not yet remitted $__________________
Unemployment insurance premiums required
to be withheld and not yet remitted $__________________
Other Prior Claims $__________________
3 months' rent and other charges (if any) for 1995 Markham Road
$_______________
Other Reserves $__________________
Total Reserves: E$__________________
BORROWING BASE AVAILABILITY (After Reserves) (D-E)
$__________________
LILY CUPS INC.
By ____________________________
Duly Authorized Signatory
</TABLE>
Exhibit 4.1(2)-2
- --------------------------------------------------------------------------------
SECURITY AGREEMENT
Made as of June 15, 1998
Between
LILY CUPS INC.
as Grantor
and
GENERAL ELECTRIC CAPITAL CANADA INC.
as Lender
- --------------------------------------------------------------------------------
MCMILLAN BINCH
----------
BARRISTERS & SOLICITORS
<PAGE>
TABLE OF CONTENTS
RECITALS 1
SECTION 1 -- DEFINED TERMS
1.1 Terms Defined in PPSA........................................1
1.2 Other Defined Terms..........................................2
SECTION 2 -- SECURITY INTEREST
2.1 Grant of Security Interest...................................2
2.2 Set-Off......................................................3
2.3 Exception to Last Day........................................3
2.4 Liability for Deficiency.....................................3
SECTION 3 -- LENDER'S RIGHTS; LIMITATIONS ON LENDER'S OBLIGATIONS
3.1 Continued Liability of Grantor under Licences, etc...........3
3.2 Notice to Account Debtors....................................4
3.3 Verification of Accounts.....................................4
SECTION 4 -- REPRESENTATIONS AND WARRANTIES OF GRANTOR
4.1 Representations and Warranties...............................4
SECTION 5 -- COVENANTS OF GRANTOR
5.1 Covenants....................................................7
(1) Further Assurances; Pledge of Instruments...........7
(2) Maintenance of Records..............................8
(3) Covenants Regarding Patent, Trademark and Copyright
Collateral.......................................8
(4) Indemnification.....................................9
(5) Compliance with Terms of Accounts, etc............ .9
(6) Limitation on Liens on Collateral...................9
(7) Limitations on Disposition..........................9
(8) Further Identification of Collateral...............10
(9) Notices............................................10
(10) Supplier Waiver and Assignment.....................10
SECTION 6 -- AGENT'S APPOINTMENT AS ATTORNEY-IN-FACT
SECTION 7 -- REMEDIES
7.1 Appointment of Receiver.....................................11
7.2 Exercise of Rights by Lender................................11
7.3 Taking Possession of Collateral.............................11
7.4 Rights and Remedies under PPSA..............................12
7.5 Cooperation of Grantor with respect to Taking Possession....12
7.6 Costs.......................................................12
(i)
<PAGE>
7.7 Notice of Sale..............................................12
7.8 Intellectual Property Licence...............................12
SECTION 8 -- REINSTATEMENT
SECTION 9 -- MISCELLANEOUS
9.1 Performance by Lender.......................................13
9.2 Extensions, etc.............................................13
9.3 No Waiver...................................................13
9.4 Waiver of Protest...........................................14
9.5 Assignment and Enurement....................................14
9.6 Amendment...................................................14
9.7 Notices.....................................................14
9.8 Remedies Cumulative.........................................14
9.9 Headings....................................................14
9.10 Number and Gender...........................................15
9.11 Severability................................................15
9.12 Extensions..................................................15
9.13 Attachment..................................................15
9.14 Amalgamation................................................15
9.15 Applicable Law..............................................16
9.16 Judgment Currency...........................................16
9.17 Counterparts................................................17
9.18 No Strict Construction......................................17
9.19 Advice of Counsel...........................................17
9.20 Limitation on Lender's Duty in Respect of Collateral........17
9.21 Limitation by Law...........................................17
9.22 Paramountcy.................................................18
9.23 Termination.................................................18
9.24 Copy........................................................18
SCHEDULES
Schedule 4.1(3) - Financing Statements And Filing Jurisdictions
Schedule 4.1(4) - Instruments and Chattel Paper
Schedule 4.1(6) - Offices and Locations of Collateral and Records
Concerning Collateral
Schedule 4.1(9) - Patents, Trademarks and Copyrights
EXHIBITS
Exhibit A - Power of Attorney
Exhibit B - Supplier Waiver and Assignment
(ii)
<PAGE>
SECURITY AGREEMENT
This Security Agreement is made as of June 15, 1998, between
LILY CUPS INC., an Ontario corporation,
("GRANTOR")
and
GENERAL ELECTRIC CAPITAL CANADA INC., a Canada corporation, as lender
("Lender") under the Credit Agreement (as defined in Recital A. below)
RECITALS
A. Pursuant to that certain Credit Agreement dated as of the date hereof between
Grantor and Lender (including all annexes, exhibits and schedules thereto, as
from time to time amended, restated, supplemented, replaced or otherwise
modified, the "CREDIT AGREEMENT"), Lender has agreed to make the Loans to
Grantor.
B. In order to induce Lender to enter into the Credit Agreement and the other
Loan Documents and to make the Loans as provided for in the Credit Agreement,
Grantor has agreed to grant a Security Interest in the Collateral (as
hereinafter defined).
FOR VALUE RECEIVED, the parties agree as follows:
SECTION 1 -- DEFINED TERMS
1.1 Terms Defined in PPSA. The terms "ACCOUNTS", "GOODS", "CHATTEL PAPER",
"DOCUMENT OF TITLE", "EQUIPMENT", "INSTRUMENT", "INTANGIBLE", "INVENTORY",
"SECURITY", "PROCEEDS", "ACCESSION", "MONEY", "FINANCING STATEMENT" and
"FINANCING CHANGE STATEMENT" whenever used herein shall be interpreted in
accordance with their respective meanings when used in the Personal Property
Security Act (Ontario), as amended from time to time, which Act, including
amendments thereto and any Act substituted therefor and amendments thereto is
herein referred to as the "PPSA". The term "GOODS" when used herein shall not
include "CONSUMER GOODS" of Grantor as that term is defined in the PPSA. Any
reference herein to "COLLATERAL" shall, unless the context otherwise requires,
be deemed a reference to "COLLATERAL OR ANY PART THEREOF". The term "PROCEEDS"
whenever used herein and interpreted as above shall by way of example include
trade-ins, Equipment, cash, bank accounts, notes, Chattel Paper, Goods,
Contracts rights, Accounts and any other personal property or obligation
received when
<PAGE>
-2-
Collateral or Proceeds are sold, exchanged, collected or otherwise disposed of.
1.2 Other Defined Terms. Subject to Section 1.1, all capitalized terms used but
not otherwise defined herein have the meanings given to them in the Credit
Agreement or in Annex A thereto except that SECURITY AGREEMENT means this
security agreement and all schedules attached hereto, as the same may be
amended, restated, supplemented, replaced or otherwise modified from time to
time. All uses of the words "hereto", "herein", "hereof", "hereby" and
"hereunder" and similar expressions refer to this Security Agreement and not to
any particular section or portion of it.
SECTION 2 -- SECURITY INTEREST
2.1 Grant of Security Interest. As continuing collateral security for the due
payment and performance by Grantor of all of the Obligations, Grantor hereby
grants, assigns, conveys, mortgages, pledges and transfers to Lender, a security
interest (the "SECURITY INTEREST") in the undertaking of Grantor and in all of
Grantor's present and after acquired personal property including, without
limitation, in all Goods (including all parts, accessories, attachments, special
tools, additions, substitutions, replacements for and accessions thereto),
Chattel Paper, Documents of Title (whether negotiable or not), Instruments,
Intangibles, Money and Securities now owned or hereafter owned or acquired by or
on behalf of Grantor (including such as may be returned to or repossessed by
Grantor and including under any trade names, styles or derivations thereof) and
in all Proceeds and renewals thereof, accretions thereto and substitutions
therefor, and including, without limitation, all of the following now or
hereafter owned or consigned by or to, or leased from or to, or otherwise
acquired by or on behalf of Grantor:
(1) all Inventory of whatever kind and wherever situate;
(2) all Equipment (other than Inventory) of whatever kind and wherever
situate, including, without limitation, all machinery, tools,
apparatus, plant, furniture, fixtures and vehicles of whatsoever
nature or kind;
(3) all Accounts, including book debts and generally all debts, dues,
claims, choses in action and demands of every nature and kind
howsoever arising or secured including letters of credit and advices
of credit, which are now due, owing or accruing or growing due to or
owned by or which may hereafter become due, owing or accruing or
growing due to or owned by Grantor ("DEBTS");
(4) all deeds, documents, writings, papers, books of account and other
books and records relating to or being records of Debts, Chattel Paper
or Documents of Title or by which such are or may hereafter be
secured, evidenced, acknowledged or made payable;
(5) all Money, cash or cash equivalents of Grantor;
(6) all contractual rights and insurance claims;
<PAGE>
-3-
(7) all Borrower Accounts, and all other deposit and other bank accounts
and all deposits therein; and
(8) all Intellectual Property of Grantor (provided that, notwithstanding
any provision to the contrary herein, the grant of security hereunder
on all Trademarks of Grantor shall be only the grant of a security
interest therein and shall not be an assignment, conveyance or
transfer thereof).
The foregoing undertaking and property are collectively referred to as the
"COLLATERAL".
2.2 Set-Off. In addition, to secure the prompt and complete payment, performance
and observance of the Obligations and in order to induce Lender as aforesaid,
Grantor hereby grants to Lender, a right of set-off against the property of
Grantor held by Lender, consisting of property described above in Section 2.1
now or hereafter in the possession or custody of or in transit to Lender, for
any purpose, including safekeeping, collection or pledge, for the account of
Grantor, or as to which Grantor may have any right or power.
2.3 Exception to Last Day. The Security Interest granted hereby shall not extend
or apply to, and Collateral shall not include, the last day of the term of any
lease of real property or agreement therefor but upon the enforcement of the
Security Interest Grantor shall stand possessed of such last day in trust to
assign the same to any person acquiring such term.
2.4 Liability for Deficiency. If the Collateral is realized upon and the
Security Interest in the Collateral is not sufficient to satisfy all
Obligations, Grantor acknowledges and agrees that, subject to the provisions of
the PPSA, Grantor shall continue to be liable for any Obligations remaining
outstanding and Lender shall be entitled to pursue full payment thereof.
SECTION 3 -- LENDER'S RIGHTS; LIMITATIONS ON LENDER'S OBLIGATIONS
3.1 Continued Liability of Grantor under Licences, etc. It is expressly agreed
by Grantor that, anything herein to the contrary notwithstanding, Grantor shall
remain liable under each of its Contracts and each of its Licences to observe
and perform all the conditions and obligations to be observed and performed by
it thereunder. Lender shall not have any obligation or liability under any
Contract or Licence by reason of or arising out of this Security Agreement or
the granting herein of a Security Interest therein or the receipt by Lender of
any payment relating to any Contract or Licence pursuant hereto. Lender shall
not be required or obligated in any manner to perform or fulfill any of the
obligations of Grantor under or pursuant to any Contract or Licence, or to make
any payment, or to make any inquiry as to the nature or the sufficiency of any
payment received by it or the sufficiency of any performance by any party under
any Contract or Licence, or to present or file any claims, or to take any action
to collect or enforce any performance or the payment of any amounts which may
have been assigned to it or to which it may be entitled at any time or times.
3.2 Notice to Account Debtors. If an Event of Default shall have occurred and be
continuing, Lender may at any time without prior notice to Grantor, notify any
Account Debtors obligated under any Account of Grantor, parties to any Contracts
of Grantor and obligors in
<PAGE>
-4-
respect of Instruments and Chattel Paper, that such Accounts and the right,
title and interest of Grantor in and under such Contracts, Instruments and
Chattel Paper have been assigned to Lender, and may notify any such Account
Debtors, such parties to any Contracts of Grantor and such obligors that
payments shall be made directly to Lender. If an Event of Default shall have
occurred and be continuing, upon the request of Lender, Grantor shall so notify
such Account Debtors, parties to Contracts and obligors in respect of
Instruments and Chattel Paper. Grantor acknowledges that any payments on or
other proceeds of Collateral received by Grantor from such Account Debtors,
parties to Contracts or obligors, whether before or after notification of the
Security Interest to such Account Debtors, parties to Contracts or obligors and
whether before or after a Default or an Event of Default, shall be received and
held by Grantor in trust for Lender and shall be deposited into a Borrower
Account pursuant to the terms of Annex C to the Credit Agreement.
3.3 Verification of Accounts. Lender may at any time in Lender's own name or in
the name of Grantor communicate with Account Debtors, parties to Contracts,
obligors in respect of Instruments and obligors in respect of Chattel Paper to
verify with such Persons, to Lender's satisfaction, the existence, amount and
terms of any such Accounts, Contracts, Instruments or Chattel Paper. If an Event
of Default shall have occurred and be continuing, Grantor, at its own expense,
shall cause the independent chartered accountants then engaged by Grantor to
prepare and deliver to Lender at any time and from time to time promptly upon
Lender's request the following reports with respect to Grantor: (1) a
reconciliation of all Accounts; (2) an aging of all Accounts; (3) trial
balances; and (4) a test verification of such Accounts as Lender may request.
Grantor, at its own expense, shall deliver to Lender the results of each
physical verification, if any, which Grantor may in its discretion have made, or
caused any other Person to have made on its behalf, of all or any portion of its
Inventory.
SECTION 4 -- REPRESENTATIONS AND WARRANTIES OF GRANTOR
4.1 Representations and Warranties. Grantor represents and warrants to Lender
that:
(1) Grantor is the sole owner of each item of Collateral in which it
purports to grant the Security Interest hereunder, and has good and
marketable title thereto free and clear of any and all Liens other
than Permitted Encumbrances;
(2) no effective security agreement, financing statement, financing change
statement, equivalent security or Lien instrument covering all or any
part of the Collateral is on file or of record in any public office,
except such as may have been filed (a) in favour of Lender pursuant to
this Security Agreement or the other Loan Documents, and (b) in
connection with any other Permitted Encumbrances;
(3) this Security Agreement is effective to create a valid and continuing
Security Interest in and, upon the filing of the appropriate financing
statements listed on Schedule 4.1(3) hereto, a perfected Security
Interest in favour of Lender on the Collateral. Such Security Interest
is prior to all other Liens, except Permitted Encumbrances that would
be prior to Security Interests in favour of Lender as a
<PAGE>
-5-
matter of law, and is enforceable as such as against any and all
creditors of and purchasers from Grantor (other than purchasers of
Goods in the ordinary course of business) subject to (i) applicable
bankruptcy, insolvency, moratorium, reorganization and other similar
laws affecting creditors rights generally, (ii) the equitable and
statutory powers of the courts of appropriate jurisdiction to stay
proceedings before them, to stay the execution of judgments and to
award costs, (iii) the discretion of such courts as to the granting of
remedies of specific performance and injunction and (iv) the
restriction that Canadian courts can only render judgments in Canadian
currency. All action by Grantor necessary or desirable to protect and
perfect the Security Interest on each item of the Collateral has been
duly taken;
(4) Schedule 4.1(4) hereto lists all Instruments and Chattel Paper of
Grantor. All action by Grantor necessary or desirable to protect and
perfect the Security Interest of Lender on each item set forth on
Schedule 4.1(4) (including the delivery of all originals thereof to
Lender and the legending of all Chattel Paper as required by Section
5.1(2) hereof) has been duly taken. The Security Interest of Lender in
the Collateral listed on Schedule 4.1(4) hereto is prior to all other
Liens, except Permitted Encumbrances that would be prior to the
Security Interest in favour of Lender as a matter of law, and is
enforceable as such against any and all creditors of and purchasers
from Grantor subject to (i) applicable bankruptcy, insolvency,
moratorium, reorganization and other similar laws affecting creditors
rights generally, (ii) the equitable and statutory powers of the
courts of appropriate jurisdiction to stay proceedings before them, to
stay the execution of judgments and to award costs, (iii) the
discretion of such courts as to the granting of remedies of specific
performance and injunction and (iv) the restriction that Canadian
courts can only render judgments in Canadian currency;
(5) all Collateral consisting of Intellectual Property applications and
registrations is valid and in good standing and Grantor is the owner
or the authorized licencee, as the case may be, of the applications
and registrations;
(6) Schedule 4.1(6) hereto sets out Grantor's chief executive office,
principal place of business, domicile (for purposes of the Quebec
Civil Code), corporate offices, all warehouses and premises where
Collateral is stored or located, and the locations of all of its books
and records concerning the Collateral;
(7) with respect to the Accounts, except as specifically disclosed on the
most recent Collateral Report delivered to Lender (a) they represent
bona fide sales of Goods or rendering of services to Account Debtors
in the ordinary course of Grantor's business and are not evidenced by
a judgment, Instrument or Chattel Paper; (b) there are no set-offs,
claims or disputes existing or asserted with respect thereto and
Grantor has not made any agreement with any Account Debtor for any
extension of time for the payment thereof, any compromise or
settlement for less than the full amount thereof, any release of any
Account Debtor from liability
<PAGE>
-6-
therefor, or any deduction therefrom except a discount or allowance
allowed by Grantor in the ordinary course of its business for prompt
payment and disclosed to Lender; (c) to Grantor's knowledge, there are
no facts, events or occurrences which in any way impair the validity
or enforceability thereof or could reasonably be expected to reduce
the amount payable thereunder as shown on Grantor's books and records
and any invoices, statements and Collateral Reports delivered to
Lender with respect thereto; (d) Grantor has not received any notice
of proceedings or actions which are threatened or pending against any
Account Debtor which might result in any adverse change in such
Account Debtor's financial condition; and (e) Grantor has no knowledge
that any Account Debtor is unable generally to pay its debts as they
become due. Further, with respect to the Accounts (x) the amounts
shown on such records and all invoices, statements and Collateral
Reports which may be delivered to Lender with respect thereto are
actually and absolutely owing to Grantor as indicated thereon and are
not in any way contingent; (y) no payments have been or shall be made
thereon except payments immediately delivered to the Borrower Accounts
or Lender as required pursuant to the terms of Annex C to the Credit
Agreement; and (z) to Grantor's knowledge, all Account Debtors have
the capacity to contract;
(8) with respect to any Inventory scheduled or listed on the most recent
Collateral Report delivered to Lender pursuant to the terms of this
Security Agreement or the Credit Agreement or any other Loan Document,
(a) such Inventory is located at one of Grantor's locations set forth
on Schedule 4.1(6) hereto, (b) no Inventory is now, or shall at any
time or times hereafter be stored at any other location without
Lender's prior consent, and if Lender gives such consent, Grantor will
concurrently therewith obtain, to the extent required by the Credit
Agreement, bailee, landlord and mortgagee agreements, (c) Grantor has
good, indefeasible and marketable title to such property and such
property is not subject to any security interest or other Lien or any
document whatsoever except for the Security Interest granted to Lender
and except for Permitted Encumbrances, (d) except as specifically
disclosed in the most recent Collateral Report delivered to Lender,
such Inventory is Eligible Inventory of good and merchantable quality,
free from all defects and is not excess, obsolete, unsaleable,
shopworn, seconds, damaged or unfit for sale; (e) such property and
all other Collateral are not subject to any licensing, patent,
royalty, trademark, trade name or copyright agreements with any third
parties which would require any consent of any third party upon sale
or disposition of that Collateral , except as disclosed to Lender in
the Credit Agreement and, then, in respect of which Grantor has
delivered to Lender Consents in form and substance satisfactory to
Lender duly executed by such third parties, or the payment of any
monies to any third party as a precondition of such sale or other
disposition, except as disclosed to Lender in writing and, then, in
respect of which Grantor has delivered to Lender Waivers in form and
substance satisfactory to Lender duly executed by such third parties,
and (f) the completion of manufacture, sale or other disposition of
such property by Lender following an
<PAGE>
-7-
Event of Default shall not require the consent of any Person and shall
not constitute a breach or default under any contract or agreement to
which Grantor is a party or to which such property is subject;
(9) Grantor does not have any interest in, or title to, any Patent,
Trademark or Copyright except as set forth in Schedule 4.1(9) hereto.
This Security Agreement is effective to create a valid and continuing
security interest in and, upon filing of this Security Agreement with
the appropriate governmental offices, perfected security interests in
favour of Lender, in Grantor's Patents, Trademarks and Copyrights and
such perfected security interests are enforceable as such as against
any and all creditors of and purchasers from Grantor subject to (i)
applicable bankruptcy, insolvency, moratorium, reorganization and
other similar laws affecting creditors rights generally, (ii) the
equitable and statutory powers of the courts of appropriate
jurisdiction to stay proceedings before them, to stay the execution of
judgments and to award costs, (iii) the discretion of such courts as
to the granting of remedies of specific performance and injunction and
(iv) the restriction that Canadian courts can only render judgments in
Canadian currency. Upon filing of the Security Agreement with the
appropriate governmental offices and the filing of appropriate
financing statements listed on Schedule 4.1(3) hereto, all action
necessary or desirable to protect and perfect Lender's security
interest in Grantor's Patents, Trademarks and Copyrights shall have
been duly taken; and
(10) Grantor has delivered to Lender a Supplier Waiver and Assignment,
substantially in the form of Exhibit B, that has been duly executed by
each affiliate of Grantor which supplies Goods to Grantor as of the
Closing Date.
SECTION 5 -- COVENANTS OF GRANTOR
5.1 Covenants. Grantor covenants and agrees with Lender that from and after the
date of this Security Agreement and until the Termination Date:
(1) Further Assurances; Pledge of Instruments. At any time and from time to
time, upon the written request of Lender and at the sole expense of Grantor,
Grantor shall promptly and duly execute and deliver any and all such further
instruments and documents and take such further actions as Lender may deem
desirable to obtain the full benefits of this Security Agreement and of the
rights and powers herein granted, including (a) using commercially reasonable
efforts to secure all consents and approvals necessary or appropriate for the
assignment to or for the benefit of Lender of any Licence or Contract held by
Grantor or in which Grantor has any rights not heretofore assigned, (b) filing
any financing statements and financing change statements under the PPSA (or
other applicable personal property security laws) with respect to the Security
Interest granted hereunder or under any other Loan Document, (c) transferring
Collateral to Lender's possession if such Collateral consists of Chattel Paper,
Instruments or Securities or if a Security Interest in such Collateral can be
perfected only by possession, or if requested by Lender, and (d) obtaining, or
using commercially reasonable efforts to obtain, waivers of Liens, if any exist,
from landlords, warehousemen and mortgagees in accordance with the Credit
<PAGE>
-8-
Agreement. Grantor also hereby authorizes Lender to file any such financing or
financing change statements without the signature of Grantor to the extent
permitted by applicable law. If any amount payable under or in connection with
any of the Collateral is or shall become evidenced by any Instrument, such
Instrument, other than cheques and notes received in the ordinary course of
business, shall be duly endorsed in a manner satisfactory to Lender immediately
upon Grantor's receipt thereof.
(2) Maintenance of Records. Grantor shall keep and maintain, at its own cost and
expense, satisfactory and complete records of the Collateral, including a record
of any and all payments received and any and all credits granted with respect to
the Collateral and all other dealings with the Collateral. All Chattel Paper
shall be marked with the following legend: "This writing and the obligations
evidenced or secured hereby are subject to the security interest of General
Electric Capital Canada Inc..
(3) Covenants Regarding Patent, Trademark and Copyright Collateral.
(a) Grantor shall notify Lender immediately if it knows or has reason to
know that any application or registration relating to any Patent,
Trademark or Copyright (now or hereafter existing) material to the
operation of its business or to Lender exercising any of its rights
and remedies in respect of the Collateral may become abandoned, or of
any adverse determination or development regarding Grantor's ownership
of any Patent, Trademark or Copyright, its right to register the same,
or to keep and maintain the same to the extent same is material to the
Grantor's business or to Lender exercising any of its rights and
remedies in respect of the Collateral.
(b) In no event shall Grantor, either directly or through any agent,
employee, licencee or designee, file an application for the
registration of any Patent, Trademark or Copyright in respect of the
operation of its business with any office or agency without giving
Lender prior written notice thereof, and, upon request of Lender,
Grantor shall execute and deliver any and all security agreements, as
Lender may request to evidence Lender's security interest in such
Patent, Trademark or Copyright, and the Intangibles of Grantor
relating thereto or represented thereby.
(c) Grantor shall take all actions necessary or requested by Lender to
maintain and pursue each application, to obtain the relevant
registration and to maintain the registration of each of the Patents,
Trademarks and Copyrights (now or hereafter existing) which are
material to the operation of its business or to Lender exercising any
of its rights and remedies in respect of the Collateral, including all
filings.
(d) In the event that any of the Patent, Trademark or Copyright
Collateral, which is material to the operation of Grantor's business
or to Lender exercising any of its rights and remedies in respect of
the Collateral is infringed upon, or misappropriated or diluted by a
third party, Grantor shall notify Lender promptly
<PAGE>
-9-
after Grantor learns thereof. Grantor shall, unless it shall
reasonably determine that such Patent, Trademark or Copyright
Collateral is in no way material to the conduct of its business or
operations, promptly sue for infringement, misappropriation or
dilution and to recover any and all damages for such infringement,
misappropriation or dilution, and shall take such other actions as
Lender shall deem appropriate under the circumstances to protect such
Patent, Trademark or Copyright Collateral.
(4) Indemnification. In any suit, proceeding or action brought by Lender
relating to any Account, Chattel Paper, Contract, Document of Title, Intangible
or Instrument for any sum owing thereunder or to enforce any provision of any
Account, Chattel Paper, Contract, Document of Title, Intangible or Instrument,
Grantor will save, indemnify and keep Lender harmless from and against all
expense (including reasonable legal fees and other legal expenses), loss or
damage suffered by reason of any defense, set-off, counterclaim, recoupment or
reduction of liability whatsoever of the obligor thereunder, arising out of a
breach by Grantor of any obligation thereunder or arising out of any other
agreement, indebtedness or liability at any time owing to, or in favour of, such
obligor or its successors from Grantor, except in the case of Lender, to the
extent such expense, loss, or damage is attributable solely to the gross
negligence or willful misconduct of Lender as finally determined by a court of
competent jurisdiction. All such obligations of Grantor shall be and remain
enforceable against and only against Grantor and shall not be enforceable
against Lender.
(5) Compliance with Terms of Accounts, etc. In all material respects, Grantor
will perform and comply with all obligations in respect of its Accounts, Chattel
Paper, Contracts and Licences and all other agreements to which it is a party or
by which it is bound relating to the Collateral.
(6) Limitation on Liens on Collateral. Grantor will not create, permit or suffer
to exist, and Grantor will defend the Collateral against, and take such other
action as is necessary to remove, any Lien on the Collateral except Permitted
Encumbrances, and will defend the right, title and interest of Lender in and to
any of Grantor's rights under the Collateral against the claims and demands of
all Persons whomsoever.
(7) Limitations on Disposition. Grantor will not sell, lease, transfer or
otherwise dispose of any of the Collateral, or attempt to contract to do so
except as permitted by the Credit Agreement.
(8) Further Identification of Collateral. Grantor will, if so requested by
Lender, furnish to Lender, as often as Lender requests (acting reasonably;
provided that, upon the occurrence of a Default or an Event of Default that is
continuing, no limitation shall apply to the frequency of Lender's requests),
statements and schedules further identifying and describing the Collateral and
such other reports in connection with the Collateral as Lender may reasonably
request, all in such detail as Lender may specify.
(9) Notices. Grantor will advise Lender promptly, in reasonable detail, (i) of
any Lien (other than Permitted Encumbrances) or claim made or asserted against
any of the Collateral, and (ii) of
<PAGE>
-10-
the occurrence of any other event which would have a material adverse effect on
the aggregate value of the Collateral or on the Liens created hereunder or under
any other Loan Document.
(10) Supplier Waiver and Assignment. Grantor will use all commercially
reasonable efforts to deliver to Lender a Supplier Waiver and Assignment,
substantially in the form of Exhibit B, that has been duly executed by each
Affiliate of Grantor which supplies Goods to Grantor after the Closing Date and
from whom Lender has not received a duly executed Supplier Waiver and
Assignment.
SECTION 6 -- AGENT'S APPOINTMENT AS ATTORNEY-IN-FACT
On the Closing Date, Grantor shall execute and deliver to
Lender a power of attorney (the "POWER OF ATTORNEY") substantially in the form
attached hereto as Exhibit A. The power of attorney granted pursuant to the
Power of Attorney is a power coupled with an interest and shall be irrevocable
until the Termination Date. The powers conferred on Lender under the Power of
Attorney are solely to protect Lender's interests in the Collateral and shall
not impose any duty upon Lender to exercise any such powers. Lender agrees that
(a) it shall not exercise any power or authority granted under the Power of
Attorney unless an Event of Default has occurred and is continuing, and (b)
Lender shall account for any money received by Lender in respect of any
foreclosure on or disposition of Collateral pursuant to the Power of Attorney
provided that Lender shall not have any duty as to any Collateral, and Lender
shall be accountable only for amounts that it actually receives as a result of
the exercise of such powers. NEITHER LENDER NOR ANY OF ITS AFFILIATES, OFFICERS,
DIRECTORS, EMPLOYEES, AGENTS OR REPRESENTATIVES SHALL BE RESPONSIBLE TO GRANTOR
FOR ANY ACT OR FAILURE TO ACT UNDER ANY POWER OF ATTORNEY OR OTHERWISE, EXCEPT
IN RESPECT OF DAMAGES ATTRIBUTABLE SOLELY TO THEIR OWN GROSS NEGLIGENCE OR
WILLFUL MISCONDUCT AS FINALLY DETERMINED BY A COURT OF COMPETENT JURISDICTION,
NOR FOR ANY PUNITIVE, EXEMPLARY, INDIRECT OR CONSEQUENTIAL DAMAGES.
SECTION 7 -- REMEDIES
7.1 Appointment of Receiver. In addition to all other rights and remedies
granted to it under this Security Agreement, the Credit Agreement, the other
Loan Documents and under any other instrument or agreement securing, evidencing
or relating to any of the Obligations, if any Event of Default shall have
occurred and be continuing, Lender may appoint or reappoint by instrument in
writing, any person or persons, whether an officer or officers or an employee or
employees of Lender or not, to be a receiver or receivers (hereinafter called a
"RECEIVER", which term when used herein shall include a receiver and manager) of
Collateral (including any interest, income or profits therefrom) and may remove
any Receiver so appointed and appoint another in its stead. Any such Receiver
shall, so far as concerns responsibility for its acts, be deemed the agent of
Grantor and not of Lender, and Lender shall not be in any way responsible for
any misconduct, negligence or non-feasance on the part of any such Receiver, its
servants, agents or employees. Subject to the provisions of the instrument
appointing it, any such Receiver shall have power to take possession of
Collateral, to preserve Collateral or its value, to carry on or
<PAGE>
-11-
concur in carrying on all or any part of the business of Grantor and to sell,
lease, license or otherwise dispose of or concur in selling, leasing, licensing
or otherwise disposing of Collateral. To facilitate the foregoing powers, any
such Receiver may, to the exclusion of all others, including Grantor, enter
upon, use and occupy all premises owned or occupied by Grantor wherein
Collateral may be situate, maintain Collateral upon such premises, borrow money
on a secured or unsecured basis and use Collateral directly in carrying on
Grantor's business or as security for loans or advances to enable the Receiver
to carry on Grantor's business or otherwise, as such Receiver shall, in its
discretion, determine. Except as may be otherwise directed by Lender, all Money
received from time to time by such Receiver in carrying out its appointment
shall be received in trust for and paid over to Lender. Every such Receiver may,
in the discretion of Lender, be vested with all or any of the rights and powers
of Lender.
7.2 Exercise of Rights by Lender. Upon and during the continuance of an Event of
Default, Lender may, either directly or through its agents or nominees, exercise
any or all of the powers and rights given to a Receiver by virtue of Section
7.1.
7.3 Taking Possession of Collateral. Lender may take possession of, collect,
demand, sue on, enforce, recover and receive Collateral and give valid and
binding receipts and discharges therefor and in respect thereof and, upon and
during the continuance of an Event of Default, Lender may sell, licence, lease
or otherwise dispose of Collateral in such manner, at such time or times and
place or places, for such consideration and upon such terms and conditions as to
Lender may seem reasonable. Lender shall use reasonable care with respect to the
Collateral in its possession or under its control. Lender shall not have any
other duty as to any Collateral in its possession or control or in the
possession or control of any agent or nominee of Lender, or any income thereon
or as to the preservation of rights against prior parties or any other rights
pertaining thereto except solely to the extent Lender has thereto agreed under
the last sentence of Section 6 and under Section 9.20.
7.4 Rights and Remedies under PPSA. In addition to those rights granted herein
and in any other agreement now or hereafter in effect between Grantor and Lender
and in addition to any other rights Lender may have at law or in equity, Lender
shall have, both before and after an Event of Default, all rights and remedies
of a secured party under the PPSA. However, Lender shall not be liable or
accountable for any failure to exercise its remedies, take possession of,
collect, enforce, realize, sell, lease, licence or otherwise dispose of
Collateral or to institute any proceedings for such purposes. Furthermore,
Lender shall have no obligation to take any steps to preserve rights against
prior parties to any Instrument or Chattel Paper whether Collateral or Proceeds
and whether or not in Lender's possession and shall not be liable or accountable
for failure to do so.
7.5 Cooperation of Grantor with respect to Taking Possession. After and during
continuance of an Event of Default, Grantor acknowledges that Lender or any
Receiver appointed by it may take possession of Collateral wherever it may be
located and by any method permitted by law and Grantor agrees upon request from
Lender or any such Receiver to assemble and deliver possession of Collateral at
such place or places as directed.
<PAGE>
-12-
7.6 Costs. Grantor agrees to be liable for and to pay all costs, charges and
expenses reasonably incurred by Lender or any Receiver appointed by it, whether
directly or for services rendered (including reasonable legal and auditors'
costs and other legal expenses and Receiver remuneration), in operating
Grantor's accounts, in preparing or enforcing this Security Agreement, taking
and maintaining custody of, preserving, repairing, processing, preparing for
disposition and disposing of Collateral and in enforcing or collecting
indebtedness and all such costs, charges and expenses, together with any amounts
owing as a result of any borrowing by Lender or any Receiver appointed by it, as
permitted hereby, shall be a first priority security interest on the proceeds of
realization, collection or disposition of Collateral and shall be secured
hereby.
7.7 Notice of Sale. Lender will give Grantor such notice, if any, of the date,
time and place of any public sale or of the date after which any private
disposition of Collateral is to be made as may be required by the PPSA.
7.8 Intellectual Property Licence. For the purpose of enabling Lender to
exercise rights and remedies under Section 7 hereof at such time as Lender shall
be lawfully entitled to exercise such rights and remedies, Grantor hereby grants
to Lender an irrevocable, non-exclusive licence (exercisable without payment of
royalty or other compensation to Grantor) to use, license or sublicense any
Intellectual Property now owned or hereafter acquired by Grantor, and wherever
the same may be located, and including in such licence access to all media in
which any of the licenced items may be recorded or stored and to all computer
software and programs used for the compilation or printout thereof.
SECTION 8 -- REINSTATEMENT
This Security Agreement shall remain in full force and effect
and continue to be effective should any petition be filed by or against any
Grantor for liquidation or reorganization, should any Grantor become insolvent
or make an assignment for the benefit of any creditor or creditors or should a
receiver or trustee be appointed for all or any significant part of any
Grantor's assets, and shall continue to be effective or be reinstated, as the
case may be, if at any time payment and performance of the Obligations, or any
part thereof, is, pursuant to applicable law, rescinded or reduced in amount, or
must otherwise be restored or returned by any obligee of the Obligations,
whether as a "voidable preference", "fraudulent conveyance," or otherwise, all
as though such payment or performance had not been made. In the event that any
payment, or any part thereof, is rescinded, reduced, restored or returned, the
Obligations shall be reinstated and deemed reduced only by such amount paid and
not so rescinded, reduced, restored or returned.
SECTION 9 -- MISCELLANEOUS
9.1 Performance by Lender. Upon Grantor's failure to perform any of its duties
hereunder, Lender may, but shall not be obligated to, perform any or all of such
duties, and Grantor shall pay to Lender, forthwith upon written demand therefor,
an amount equal to the expense incurred by Lender in so doing plus interest
thereon from the date such expense is incurred until it is paid
<PAGE>
-13-
at an annual rate of interest equal to the Index Rate plus 4.50%, as determined
by Lender on the basis of a three hundred and sixty-five (365) day year, in each
case for the actual number of days occurring in the period for which such
interest is payable. The Index Rate shall be determined in accordance with the
Credit Agreement. For the purposes of the Interest Act (Canada), such rate of
interest shall be equivalent to a rate based on a calendar year equal to such
rate of interest multiplied by the actual number of days in the calendar year of
calculation and divided by three hundred and sixty-five (365).
9.2 Extensions, etc. Lender may grant extensions of time and other indulgences,
take and give up security, accept compositions, compound, compromise, settle,
grant releases and discharges and otherwise deal with Grantor, debtors of
Grantor and with Collateral and other security as Lender may see fit without
prejudice to the liability of Grantor or Lender's right to hold and realize the
Security Interest. Furthermore, Lender may demand, collect and sue on Collateral
in Grantor's name and may endorse Grantor's name on any and all cheques,
commercial paper, and any other Instruments and any Securities pertaining to or
constituting Collateral.
9.3 No Waiver. No delay or omission by Lender in exercising any right or remedy
hereunder or with respect to any of the Obligations shall operate as a waiver
thereof or of any other right or remedy, and no single or partial exercise
thereof shall preclude any other or further exercise thereof or the exercise of
any other right or remedy. Furthermore, Lender may remedy any default by Grantor
hereunder or with respect to any Obligations in any reasonable manner without
waiving the default remedied and without waiving any other prior or subsequent
default by Grantor. All rights and remedies of Lender granted or recognized
herein are cumulative and may be exercised at any time and from time to time
independently or in combination.
9.4 Waiver of Protest. Grantor waives protest of any Instrument constituting
Collateral at any time held by Lender on which Grantor is in any way liable and,
subject to Section 7.7 hereof, notice of any other action taken by Lender.
9.5 Assignment and Enurement. To the extent permitted by the Credit Agreement,
this Security Agreement shall enure to the benefit of and be binding upon the
parties hereto and their respective successors and assigns. In any action
brought by an assignee of this Security Agreement and the Security Interest or
any part thereof to enforce any rights hereunder, Grantor shall not assert
against the assignee any claim or defence which Grantor now has or hereafter may
have against Lender. No sales of participations, other sales, assignments,
transfers or other dispositions of any agreement governing or instrument
evidencing the Obligations or any portion thereof or interest therein shall in
any manner affect the Security Interest granted to Lender hereunder. Grantor may
not assign, sell, hypothecate or otherwise transfer any interest in or
obligation under this Security Agreement.
9.6 Amendment. No modification, variation or amendment of any provision of this
Security Agreement shall be made except by a written agreement, executed by the
parties hereto and no waiver of any provision hereof shall be effective unless
in writing.
<PAGE>
-14-
9.7 Notices. Except as otherwise provided herein, whenever it is provided herein
that any notice, demand, request, consent, approval, declaration or other
communication shall or may be given to or served upon any of the parties by any
other party, or whenever any of the parties desires to give and serve upon any
other party any communication with respect to this Security Agreement, each such
notice, demand, request, consent, approval, declaration or other communication
shall be in writing and shall be given in the manner, and deemed received, as
provided for in the Credit Agreement.
9.8 Remedies Cumulative. This Security Agreement and the security afforded
hereby is in addition to and not in substitution for any other security now or
hereafter held by Lender and is intended to be a continuing security agreement
and shall remain in full force and effect until all Obligations and any
extensions or renewals thereof together with interest accruing thereon shall be
paid in full. No single or partial exercise by Lender of any right or remedy
precludes or otherwise affects the exercise of any other right or remedy to
which that party may be entitled.
9.9 Headings. The headings used in this Security Agreement are for convenience
only and are not to be considered a part of this Security Agreement and do not
in any way limit or amplify the terms and provisions of this Security Agreement.
9.10 Number and Gender. When the context so requires, the singular number shall
be read as if the plural were expressed and the provisions hereof shall be read
with all grammatical changes necessary dependent upon the person referred to
being a male, female, firm or corporation.
9.11 Severability. Wherever possible, each provision of this Security Agreement
shall be interpreted in such a manner as to be effective and valid under
applicable law, but if any provision of this Security Agreement shall be
prohibited by or invalid under applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity without invalidating
the remainder of such provision or the remaining provisions of this Security
Agreement. This Security Agreement is to be read, construed and applied together
with the Credit Agreement and the other Loan Documents which, taken together,
set forth the complete understanding and agreement of Lender and Grantor with
respect to the matters referred to herein and therein.
9.12 Extensions. Nothing herein contained shall in any way obligate Lender to
grant, continue, renew, extend time for payment of or accept anything which
constitutes or would constitute Obligations.
9.13 Attachment. The Security Interest created hereby is intended to attach when
this Security Agreement is signed by Grantor and delivered to Lender.
9.14 Amalgamation. Grantor acknowledges and agrees that in the event it
amalgamates with any other corporation or corporations it is the intention of
the parties hereto that the term "Grantor" when used herein shall apply to each
of the amalgamating corporations and to the amalgamated corporation, such that
the Security Interest granted hereby:
(1) shall extend to "Collateral" (as that term is herein defined) owned by
each of the
<PAGE>
-15-
amalgamating corporations and the amalgamated corporation at the time
of amalgamation and to any "Collateral" thereafter owned or acquired
by the amalgamated corporation, and
(2) shall secure the Obligations of each of the amalgamating corporations
and the amalgamated corporation to Lender at the time of amalgamation
and all Obligations of the amalgamated corporation to Lender
thereafter arising. The Security Interest shall attach to "Collateral"
owned by each corporation amalgamating with Grantor, and by the
amalgamated corporation, at the time of the amalgamation, and shall
attach to any "Collateral" thereafter owned or acquired by the
amalgamated corporation when such becomes owned or is acquired.
9.15 APPLICABLE LAW.
(1) This Security Agreement shall be conclusively deemed to be a
contract made under, and shall for all purposes be governed by, and construed
and interpreted in accordance with, the laws of the Province of Ontario and the
federal laws of Canada applicable therein in effect from time to time,
including, where applicable, the PPSA, without prejudice to or limitation of any
other rights or remedies available under the laws of any jurisdiction where
property or assets of Grantor may be found. Grantor hereby expressly submits to
the non-exclusive jurisdiction of the courts of the Province of Ontario in
connection with any action, suit or proceeding relating to this Security
Agreement, or any other instrument or document referred to herein or related
hereto.
(2) Grantor hereby irrevocably waives any objection which it may now or
hereafter have to the laying of venue of any suit, action or proceeding arising
out of or relating to this Security Agreement or any instrument or document
referred to herein or related hereto brought in any court sitting in the
Province of Ontario and hereby further irrevocably waives any claim that any
such suit, action or proceeding brought in any such court has been brought in an
inconvenient forum.
(3) Notwithstanding anything to the contrary in this Security
Agreement, Lender may sue Grantor in any jurisdiction where Grantor or any of
its assets may be found and may serve legal process upon Grantor in any other
manner permitted by law.
(4) Because disputes arising in connection with complex financial
transactions are most quickly and economically resolved by an experienced and
expert person and the parties wish applicable provincial and federal laws to
apply, the parties desire that disputes arising hereunder or relating hereto be
resolved by a judge applying such applicable laws. Therefore, the parties hereto
waive all right to trial by jury in any action, suit or proceeding brought to
resolve any dispute, whether sounding in contract, tort, or otherwise, between
Lender and Grantor arising out of, connected with, related to, or incidental to
the relationship established in connection with, this Security Agreement or any
of the other documents or the transactions related hereto or thereto.
<PAGE>
-16-
9.16 JUDGMENT CURRENCY.
(1) If, for the purpose of obtaining or enforcing judgment against
Grantor in any court in any jurisdiction, it becomes necessary to convert into
any other currency (such other currency being hereinafter in this Section 9.16
referred to as the "JUDGMENT CURRENCY") an amount due in Canadian Dollars, the
conversion shall be made at the rate of exchange specified by Lender as being
the rate available to Lender in Toronto, Ontario on the Business Day immediately
preceding (a) the date of actual payment of the amount due, in the case of any
proceeding in the courts of the Province of Ontario or in the courts of any
other jurisdiction that will give effect to such conversion being made on such
date, or (b) the date on which the judgment is given, in the case of any
proceeding in the courts of any other jurisdiction (the applicable date as of
which such conversion is made pursuant to this Section 9.16(1) being hereinafter
in this Section 9.16 referred to as the "JUDGMENT CONVERSION DATE").
(2) If, in the case of any proceeding in the court of any jurisdiction
referred to in Section 9.16(1), there is a change in the rate of exchange
available to Lender between the Judgment Conversion Date and the date of actual
receipt for value of the amount due, Grantor shall pay such additional amount
(if any, but in any event not a lesser amount) as may be necessary to ensure
that the amount actually received for value in the Judgment Currency, when
converted at the rate of exchange specified by Lender as being the rate
available to Lender on the date of payment, will produce the amount of Canadian
Dollars which could have been purchased with the amount of the Judgment Currency
stipulated in the judgment or judicial order at the rate of exchange on the
Judgment Conversion Date.
9.17 Counterparts. This Security Agreement may be executed in any number of
separate counterparts each of which shall collectively and separately constitute
one and the same agreement.
9.18 No Strict Construction. The parties hereto have participated jointly in the
negotiation and drafting of this Security Agreement. In the event an ambiguity
or question of intent or interpretation arises, this Security Agreement shall be
construed as if drafted jointly by the parties hereto and no presumption or
burden of proof shall arise favouring or disfavouring any party by virtue of the
authorship of any provisions of this Security Agreement.
9.19 Advice of Counsel. Each of the parties represents to each other party
hereto that it has discussed this Security Agreement and, specifically, the
provisions of Section 9.15, with its counsel.
9.20 Limitation on Lender's Duty in Respect of Collateral. Lender shall use
reasonable care with respect to the Collateral in its possession or under its
control. Lender shall not have any other duty as to any Collateral in its
possession or control or in the possession or control of any agent or nominee of
Lender, or any income thereon or as to the preservation of rights against prior
parties or any other rights pertaining thereto except solely to the extent
Lender has thereto agreed under the last sentence of Section 6.
<PAGE>
-17
9.21 Limitation by Law. All rights, remedies and powers provided in this
Security Agreement may be exercised only to the extent that the exercise thereof
does not violate any applicable provision of law and all the provisions of this
Security Agreement are intended to be subject to all applicable mandatory
provisions of law that may be controlling and to be limited to the extent
necessary so that they shall not render this Security Agreement invalid,
unenforceable, in whole or in part, or not entitled to be recorded, registered
or filed under the provisions of any applicable law.
9.22 Paramountcy. To the extent of any conflict or inconsistency between the
provisions of the Credit Agreement and this Agreement, the provisions of the
Credit Agreement shall prevail, provided that, for greater certainty, there
shall not be any such conflict and inconsistency unless Grantor cannot comply
with all relevant provisions.
9.23 Termination. This Security Agreement shall terminate on the Termination
Date.
9.24 Copy. Grantor hereby acknowledges receipt of a copy of this Security
Agreement.
The parties have executed this Security Agreement.
LILY CUPS INC.
By: /s/ Bruce Wells
---------------
Name: Bruce Wells
Title: Vice-President, Finance
GENERAL ELECTRIC CAPITAL CANADA INC.
By: /s/ Martin Greenberg
--------------------
Name:
Duly Authorized Signatory
SCHEDULE 4.1(3) - FINANCING STATEMENTS AND FILING JURISDICTIONS
Ontario: Reference File No.: 841238352
Registration No.: 980529 1737 1590 4287
(5 years)
Quebec: Primary Hypothec No.: 98-0068292-0001
Floating Hypothec No.: 98-0068293-0001
(10 years)
<PAGE>
SCHEDULE 4.1(4) - INSTRUMENTS AND CHATTEL PAPER
None
4.1(4)-1
<PAGE>
SCHEDULE 4.1(6) - OFFICES AND LOCATIONS OF COLLATERAL
AND RECORDS CONCERNING COLLATERAL
1. Chief Executive Office: 300 Danforth Road
Scarborough, Ontario
M1L 3K5
2. Principal Place of Business: 300 Danforth Road
Scarborough, Ontario
M1L 3K5
3. Domicile (for purposes of the Quebec Civil Code):
300 Danforth Road
Scarborough, Ontario
M1L 3K5
4. Corporate Offices: 300 Danforth Road
Scarborough, Ontario
M1L 3K5
5. Warehouses: (a) 2121 Markham Road
Scarborough, Ontario
(b) 300 Danforth Road
Scarborough, Ontario
6. Other Premises at Which Collateral is Stored or Located:
(a) Boulter Carting
2 Potomac Street
Rochester, New York
U.S.A. 14611
(b) Chester Cartage
1995 Markham Road
Scarborough, Ontario
M1B 2W3
4.1(6)-1
<PAGE>
7. Locations of Records Concerning Collateral:
(a) 2121 Markham Road
Scarborough, Ontario
(b) 300 Danforth Road
Scarborough, Ontario
4.1(6)-2
<PAGE>
SCHEDULE 4.1(9) - PATENTS, TRADEMARKS AND COPYRIGHTS
[Attached]
4.1(9)-1
<PAGE>
EXHIBIT A
POWER OF ATTORNEY
This Power of Attorney is executed and delivered by Lily Cups
Inc., an Ontario corporation ("GRANTOR"), to General Electric Capital Canada
Inc., a Canada corporation (hereinafter referred to as "Attorney"), as Lender
under a Credit Agreement and a Security Agreement, both dated as of June 15,
1998, and other related documents (the "LOAN DOCUMENTS"). No person to whom this
Power of Attorney is presented, as authority for Attorney to take any action or
actions contemplated hereby, shall be required to inquire into or seek
confirmation from Grantor as to the authority of Attorney to take any action
described below, or as to the existence of or fulfilment of any condition to
this Power of Attorney, which is intended to grant to Attorney unconditionally
the authority to take and perform the actions contemplated herein, and Grantor
irrevocably waives any right to commence any suit or action, in law or equity,
against any person or entity which acts in reliance upon or acknowledges the
authority granted under this Power of Attorney. The power of attorney granted
hereby is coupled with an interest, and may not be revoked or cancelled by
Grantor without Attorney's written consent.
Grantor hereby irrevocably constitutes and appoints Attorney
(and all officers, employees or agents designated by Attorney), with full power
of substitution, as Grantor's true and lawful attorney-in-fact with full
irrevocable power and authority in the place and stead of Grantor and in the
name of Grantor or in its own name, from time to time in Attorney's discretion,
to take any and all appropriate action and to execute and deliver any and all
documents and instruments which may be necessary or desirable to accomplish the
purposes of the Loan Documents and, without limiting the generality of the
foregoing, Grantor hereby grants to Attorney the power and right, on behalf of
Grantor, without notice to or assent by Grantor, and at any time, to do the
following: (a) change the mailing address of Grantor, open a post office box on
behalf of Grantor, open mail for Grantor, and ask, demand, collect, give
acquittances and receipts for, take possession of, endorse any invoices, freight
or express bills, bills of lading, storage or warehouse receipts, drafts against
debtors, assignments, verifications, and notices in connection with any property
of Grantor; (b) effect any repairs to any asset of Grantor, or continue or
obtain any insurance and pay all or any part of the premiums therefor and costs
thereof, and make, settle and adjust all claims under such policies of
insurance, and make all determinations and decisions with respect to such
policies; (c) pay or discharge any taxes, liens, security interests, or other
encumbrances levied or placed on or threatened against Grantor or its property;
(d) defend any suit, action or proceeding brought against Grantor if Grantor
does not defend such suit, action or proceeding or if Attorney believes that
Grantor is not pursuing such defense in a manner that will maximize the recovery
to Attorney, and settle, compromise or adjust any suit, action, or proceeding
described above and, in connection therewith, give such discharges or releases
as Attorney may deem appropriate; (e) file or prosecute any claim, litigation,
suit or proceeding in any court of competent jurisdiction or before any
arbitrator, or take any other action otherwise deemed appropriate by Attorney
for the purpose of collecting any and all such money due to Grantor wherever
payable and to enforce any other right in respect of
A-1
<PAGE>
Grantor's property; (f) cause the chartered public accountants then engaged by
Grantor to prepare and deliver to Attorney at any time and from time to time,
promptly upon Attorney's request, the following reports: (1) a reconciliation of
all accounts, (2) an aging of all accounts, (3) trial balances, (4) test
verifications of such accounts as Attorney may request, and (5) the results of
each physical verification of inventory; (g) communicate in its own name with
any party to any Contract with regard to the assignment of the right, title and
interest of such Grantor in and under the Contract and other matters relating
thereto; and (h) execute, in connection with any sale provided for in any Loan
Document, any endorsements, assignments or other instruments of conveyance or
transfer with respect to the Collateral and to otherwise direct such sale or
resale, all as though Attorney were the absolute owner of the property of
Grantor for all purposes, and to do, at Attorney's option and Grantor's expense,
at any time or from time to time, all acts and other things that Attorney
reasonably deems necessary to perfect, preserve, or realize upon Grantor's
property or assets and Attorney's Liens thereon, all as fully and effectively as
Grantor might do. Grantor hereby ratifies, to the extent permitted by law, all
that said Attorney shall lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, this Power of Attorney is executed by
Grantor, and Grantor has caused its seal to be affixed pursuant to the authority
of its board of directors as of this 15th day of June, 1998.
LILY CUPS INC.
By: /s/ Bruce Wells (CS)
---------------
Title: Vice-President, Finance
A-2
<PAGE>
EXHIBIT B
SUPPLIER WAIVER AND ASSIGNMENT
To: GENERAL ELECTRIC CAPITAL CANADA
INC., as lender ("LENDER") under the Security Agreement (as
hereinafter defined).
This Waiver and Assignment is delivered to you pursuant to
Section 5.1(10) of the Security Agreement dated as of June o, 1998 between Lily
Cups Inc. ("GRANTOR") and Lender (as amended, restated, supplemented and
otherwise modified, the "SECURITY AGREEMENT").
For good and valuable consideration, the undersigned hereby
agrees with Lender as follows:
1. The undersigned shall not, without the prior written specific consent of
Lender, exercise any of its rights under Section 81.1 of the Bankruptcy and
Insolvency Act (Canada) (the "BIA") as a "supplier" within the meaning of
Section 81.1 of the BIA with respect to any goods sold and delivered by the
undersigned to Grantor (including, without limitation, any right to deliver a
demand for repossession pursuant to section 81.1(a) of the BIA) or any other
repossession or similar right of the undersigned arising by contract or under
any other applicable law, (including, without limitation, the Civil Code of
Quebec) with respect to goods of Grantor (collectively, "REPOSSESSION RIGHTS").
2. Without limiting the requirement of a consent of Lender being obtained under
Section 1 above prior to the exercise of any Repossession Rights, the
undersigned hereby assigns and transfers to Lender all Repossession Rights of
the undersigned and all goods and proceeds of such goods (in any form, including
accounts receivable or money) received or receivable by the undersigned in
connection with any exercise of its Repossession Rights and hereby appoints
Lender as its attorney for the purpose of exercising such Repossession Rights,
which may or may not be exercised by Lender in its sole discretion.
Dated this day of __________, 199_
[NAME OF SUPPLIER]
By:
Name:
Title:
Acknowledged this __ day of __________ 199__
B-1
<PAGE>
GENERAL ELECTRIC CAPITAL CANADA INC.
By:
Name:
Title:
August 6, 1998
Sweetheart Holdings Inc.
10100 Reisterstown Road
Owings Mills, Maryland 21117
Dear Sirs/Madams:
At your request, we have read the description included in your Quarterly Report
on Form 10-Q to the Securities and Exchange Commission for the quarter ended
June 30, 1998, of the facts relating to your change in method of accounting for
inventories from the last-in first-out (LIFO) method to the first-in first-out
(FIFO) method. We believe, on the basis of the facts so set forth and other
information furnished to us by appropriate officials of the Company, that the
accounting change described in your Form 10-Q is to an alternative accounting
principle that is preferable under the circumstances.
We have not audited any consolidated financial statements of Sweetheart Holdings
Inc. and its consolidated subsidiaries as of any date or for any period.
Therefore, we are unable to express, and we do not express, an opinion on the
facts set forth in the above-mentioned Form 10-Q, on the related information
furnished to us by officials of Sweetheart Holdings Inc., or on the financial
position, results of operations, or cash flows of the Company and its
consolidated subsidiaries as of any date or for any period.
Yours truly,
/s/ Deloitte & Touche
Baltimore, Maryland
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 11,055
<SECURITIES> 0
<RECEIVABLES> 93,544
<ALLOWANCES> 2,780
<INVENTORY> 133,690
<CURRENT-ASSETS> 255,920
<PP&E> 544,629
<DEPRECIATION> 174,703
<TOTAL-ASSETS> 682,018
<CURRENT-LIABILITIES> 164,021
<BONDS> 420,967
54
0
<COMMON> 0
<OTHER-SE> 29,672
<TOTAL-LIABILITY-AND-EQUITY> 682,018
<SALES> 626,960
<TOTAL-REVENUES> 626,960
<CGS> 588,821
<TOTAL-COSTS> 588,821
<OTHER-EXPENSES> 70,842
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 32,439
<INCOME-PRETAX> (65,142)
<INCOME-TAX> (26,055)
<INCOME-CONTINUING> (39,087)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (1,511)
<NET-INCOME> (40,598)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
